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Spring Statement Affordability Test

Volume 820: debated on Wednesday 23 March 2022

Private Notice Question

Asked by

To ask Her Majesty’s Government what steps, if any, they took ahead of the Spring Statement to conduct an affordability test on the impact of the rise in cost of living, the reduction in Universal Credit payments of £20 per week and inflation rates for lower income families, and if so, what did it conclude.

The Government take seriously impacts on the cost of living for households, including when considering policies for the Spring Statement, and are providing support worth over £22 billion in 2022-23 to help. Her Majesty’s Treasury has published analysis alongside the Spring Statement, estimating the impact of policies announced, since the spending round 2019, on households. This shows that, in 2024-25, the tax, welfare and spending decisions will have benefited the poorest households the most as a percentage of their income.

My Lords, I am grateful to my noble friend, but this is not 2024-25. What people need now is cash in their pockets, not tax cuts later in the Parliament. Had the Treasury done an assessment—in fact, anyone can do the assessment—it would have concluded that the poorest people in this country simply will not be able to meet their bills, because of the impact of electricity and energy costs, because of food inflation and because CPI does not measure the real inflation rates that are felt by the poorest families in the country. Will my noble friend ask her colleague the Chancellor, whose measures I welcome today, to look again at the recommendation from the Economic Affairs Committee of this House to restore the £20 a week payment for people on universal credit?

My Lords, the Government absolutely understand that people need support with their household bills now. That is why, previously, we had announced £9 billion to support households with energy costs over the coming year. We consider all recommendations by the Economic Affairs Committee very carefully. Of course, we have provided further support to those on universal credit through cutting the taper rate and increasing the work allowance.

My Lords, I never thought I would find myself saying this, but I must commend this Question from the noble Lord. It seems to me that it goes to the essence of good government. The Government should try to understand the needs of all sections of our society, particularly those with the greatest needs and the least influence. This morning, we learned that inflation has hit 6.2%—a 30-year high —and is likely to continue climbing. Today’s Spring Statement contained modest changes aimed at working people, but nothing—I repeat: nothing—to ease the very genuine concerns of pensioners and benefit claimants. Those relying on social security face significant real-terms cuts in their payments in just two weeks’ time. Why have the Government chosen, yet again, not to ease the huge cost-of-living pressures faced by some of the most vulnerable in society? Is it because, as individuals, members of the Government cannot envisage the appalling pain of real poverty, and hence believe it does not exist?

I am afraid I disagree with the noble Lord. The measures announced today were not modest; they were significant measures in terms of putting money back into people’s pockets to help them with the cost of living. We have taken significant action before today in the energy support package, in the changes to universal credit, in increasing the national living wage, which is rising by 6.6% in April—worth £1,000 to people on the national living wage who are earning full-time. So I am afraid to say I disagree with the noble Lord. I also disagree with the policy that he advocates of cancelling the health and social care levy to pay for our NHS. I listened carefully to his honourable friend Rachel Reeves’s response to the Statement today, and I did not hear her advocate for any changes to benefit levels.

My Lords, this is the third voice, joining the noble Lords, Lord Forsyth and Lord Tunnicliffe. Will the Minister understand that this House is ringing the crisis bell, because it is going to be a crisis for a very large number of people trying to live through this coming year? The OBR forecasts inflation at 9% by the end of the year, and if the Minister takes into account every argument that she has made and every measure produced by the Chancellor, the OBR still says that we will experience

“the largest fall in a single financial year”

in real household disposable incomes

“since ONS records began in 1956-57”.

Is it not extraordinary that, in order to finance a tax cut in 2024, the Chancellor is raising national insurance contributions today? Let us not have shilly-shallying over hypothecation. In fact, he could cancel today’s national insurance contribution rise, use windfall taxes to fill in for the two-year period and come out no worse in 2024. Why does he not do it?

My Lords, the Government make no apology for the health and social care levy. It is the number one priority of people in this country that their health service is back on track, and we need hypothecated funding to pay for it. The increase in national insurance thresholds means that, even when we take into account that levy, something like 60% of people will still be better off. That is money in their pockets to help them face the cost-of-living crisis that the Government recognise that people are facing this year.

My Lords, when the Government were looking forward in relation to food prices, did they take into account the role that food banks now play in our society? Are they budgeted in as something that is part of what we do, which is having to give away free food? We already have 59% of families saying that they are deciding between heating and eating—that horrible expression. Where do the Government stand in terms of helping people with food bills? Does the Minister think that, as chair of Feeding Britain, I should have a growth strategy?

My Lords, of course food prices are taken into account alongside fuel prices when we look at inflation and how it flows through to benefit rates. The noble Baroness will be aware that the Government are continuing their support for holiday clubs, including free meals, to ensure that children in families that get support during term time also have that support during the school holidays.

My Lords, nobody pretends that the Chancellor has an easy job, and I commend him for many of his policies. However, there has been a geopolitical shift in the past two months which should worry us all. This is the most dangerous period the Minister has ever lived in—indeed, that most of the population of Britain have ever lived in—yet she has completely ignored the fact that we are cutting the Army by 11% and reducing our ships and aircraft and at the same time Putin is running through Ukraine. Will she please go back to the Treasury and say that this is an emergency—an emergency much more important than the cost of living—and we need to spend some money on it?

My Lords, my noble friend is right that the situation in Ukraine reminds us about the United Kingdom’s security situation and place in the world, but I have to disagree with him. At the spending review, the defence settlement was not for one or two years but for four years and was the biggest increase in defence spending since the end of the Cold War, which rightly reflects the priority that my noble friend seems to give to the matter.

My Lords, for the poorest families who have already cut back to the bone, this is an emergency. Will the Minister explain exactly what additional money has been put into their pockets by this morning’s announcement? Will she explain how giving discretionary funds to local authorities, which will give one-off discretionary grants, will compensate for the cut in the real value of benefits to which the noble Lord referred?

My Lords, we have helped those families in a number of ways. In fact, with the universal credit changes at the Budget our first priority was giving, effectively, tax breaks to those in lowest income households. We have also extended the household support fund by £500 million a year. That allows local authorities, which are often best placed to identify those families, to give them the right support at this difficult time.

My Lords, in the light of the huge inflationary pressures that are on people across the board and with the Government’s plan to use universal credit as a way of recovering £6 billion-worth of historic tax credit debt, what assessment has been made of whether there is the slightest chance of recovering those debts? What assessment has been made of that level of debt?

My Lords, the Government have done a significant amount of work in helping households manage their debts, for example, through the breathing space programme and the statutory debt repayment programme. It is important that the Government manage public money well and, where possible, ensure that where money may have been overpaid or mispaid it is paid back.

My Lords, in light of the answers that my noble friend has given, I think we all agree that one of the best ways to help those with low incomes is to give them job security. Can she please explain why the Government are proceeding with this jobs tax—the national insurance rise—on employers, given that the Institute of Directors has said that it

“adds needless complexity to the tax system, encourages self-employment rather than employment, and”—

this is the key point—

“hits hardest the labour-intensive sectors that suffered most from Covid”?

Why are they ploughing ahead with this at the very time when people need job security, not a jobs tax?

My Lords, I think I have been clear about the health and social care levy, which is being used to fund people’s number one priority, our National Health Service. In good news for my noble friend, I am sure he will have noticed that today we are raising the employment allowance to £5,000. That is a £1,000 tax cut for small businesses, cutting employers’ national insurance bills.

My Lords, how does the Minister expect hard-pressed local authorities to divide £500 million between the 11 million families who are dependent on universal credit now? Does she really believe that giving that money to local authorities is preferable to giving people an extra uplift in universal credit?

My Lords, as many noble Lords will know, people on universal credit are often in work and earning. They will benefit from the increase in the national insurance threshold and from the increase in the national living wage by 6.6%. They will also benefit from the previously announced cut to the UC taper and work allowance. The Household Support Fund has been in operation for a period of time. As for the extra money going into it, the local authorities have already been managing that money and distributing it, and I am sure they are doing a very good job.

My Lords, the original care levy was promoted as solving the social care problem for this country, but it turns out that essentially it is a subsidy for the wealthy in order to prevent them having to sell their homes to pay their care costs. How can it possibly be right that the poorest workers are having to pay to subsidise the well off?

I believe the noble Lord is referring to the care cap that is coming into place. That is a result of previous work by the Dilnot commission, which it builds on. I understand that noble Lords on the other side think that the cap is set at too high a level rather than too low. I think that is not the right characterisation of the Government’s policy.

My Lords, I refer my noble friend to the admirable question asked by my noble friend Lord Forsyth: did the Government conduct an affordability test on the impact on the cost of living, and, if so, what form did it take?

As I say, my Lords, we have provided analysis in the round of tax and spending decisions taken by the Government since the 2019 spending review. That analysis shows that the combined impact of those decisions is progressive, with the largest burden placed on higher-income households as a proportion of their income.

My Lords, 6.2 million people in this country live on an annual income of less than £9,500. Today’s announcement gave them zero. Is that not a badge of shame for the Government? If so, what are they going to do about it?

The announcement today will be worth hundreds of pounds to millions of people across this country and will help them with the cost of living. The Government have a long-term plan to help everyone into work and to progress in work. We are investing nearly £4 billion in skills over the course of this Parliament. We are increasing the national living wage, which will see the lowest paid in this country receive the biggest pay rise since the national living wage was introduced. That is a record that I am proud of.

Last month a High Court judge ruled that the failure to include ESA and other legacy benefits in the £20 uplift to universal credit was discriminatory against disabled people. Many disabled people face higher energy costs and other living costs, which multiply the effect of the cost-of-living crisis for them. How are the Government going to ensure that disabled people can afford to live in this country?

My Lords, the noble Baroness is absolutely right about the increase in living costs that will be faced by disabled people. That is why, as part of our energy support package worth £9 billion, we have provided council tax rebates worth £150 to help people with the cost of energy as well as a discretionary fund to local authorities so that those who will not benefit from the council tax rebates will also share in that support.