Paul Rowen (Rochdale) (LD): I beg to move,

Good morning, Mr. Chope. It is a pleasure to serve under your chairmanship. We are here to consider the new employment and support allowance regulations. They apply to all new claimants since 27 October 2008, but will be rolled out eventually to all people with health conditions. They are the first such regulations under the Welfare Reform Act 2007. I am sure that the Minister is aware that, since the publication of the regulations, concerns have been expressed about them by several disability groups, Citizens Advice and the Chartered Institute of Taxation.

We have prayed against the regulations because we believe that such a huge change in benefits—by that I mean, 169 regulations and nine schedules that will have far-reaching implications for huge numbers of people—should have been put before the whole House. Given that the proposed changes under the regulations have not been subject to proper parliament scrutiny, some of them will have perverse effects on the benefits that people receive. I apologise for expressing my argument in great detail, but I am sure that hon. Members will appreciate that when dealing with such massive changes, we cannot allow them to go through without commenting on their effects.

As hon. Members are aware, the allowances have two aspects: a contributory strand accessible via national insurance contributions and an income-related strand, which is accessible via an income test. Parts 3 and 4 of the regulations set out the conditions of that entitlement. The separate strands are treated differently so, for the first time, those having worked and paid national insurance contributions, or those in receipt of sickness disability benefit as of right, will be—or could be—considerably worse off under employment and support allowance than those who have not paid contributions, and that is perverse.

Those claimants who have worked and paid national insurance contributions, but have no partner or other income and savings, will be worse off than those who have not paid contributions, as they will have to apply separately for each benefit entitlement, whereas non-contributors will receive them automatically. Furthermore, contribution-based ESA is taxable, whereas income-based ESA is not. Citizens Advice concluded that, if national insurance contributors perform permitted work, the difference will be considerable—nearly £60 per week, or more if the lack of passported benefits is taken into account.

The assessment phase for the first 13 weeks from the start of the claim is equivalent to the personal allowances under jobseeker’s allowance and income support. What about the extra costs involved in the life of a disabled individual? Have those been taken into account? The amounts to which individuals are entitled are set out in schedule 4. People entitled to the main phase rate after 13 weeks will receive just £84.50, compared with existing claimants who receive IS with an entitlement to a disability premium, which ensures that they receive £86.35 per week. The 13-week assessment phase involves a lower income of £60.50, so in the first year of their claim that group will be more than £400 worse off under ESA. For under-25s, payment will be only £47.95 per week for the 13-week assessment period.

If a claimant is assessed as having only limited capacity to work, they will progress to the main phase of the benefit. However, they will receive the same basic rate as they do in the assessment phase. Those able to work will receive a work-related activity component and those who are unable to work will receive a support component. If people have a limited capacity to work, but not a limited capacity for work-related activity, they will receive interventions and actions, such as a work-focused health-related assessment, to move them back into the workplace. What money will those claimants receive, on top of their basic rate, before the assessment takes place? We do not want that group slipping through the gaps.

As I have said, there is a disparity between those on income-based ESA and those on contribution-based ESA. Contribution-based ESA will be taken through the council tax benefit tapers and housing benefit tapers, leading to the need for separate applications for other benefits. The rates are not above the current long-term incapacity benefit rate—contrary to the promise made during the passage of the Welfare Reform Act 2007 in the House. The main phase rate of ESA is equal to, but not higher than, the long-term IB rate. That is out of sync with the Government’s agenda for disabled people. In their January 2005 report, “Improving the Life Chances of Disabled People”, they set out their vision:

Furthermore, research in Department for Work and Pensions working paper 21, “Review of evidence on the extra costs of disability”, found that current levels of disability living allowance and attendance allowance were not sufficient to meet costs.

The amounts that individuals are entitled to are set out in schedule 4. ESA was above the long-term IB rate at the time of the statement in Parliament, but IB has increased since then. The Minister on the Standing Committee, who is now the Secretary of State for Scotland, said:

That is not currently the case, so that commitment has not been met. The rates that ESA claimants will receive are lower than those that they would receive on IB. The Minister present must address that at the very least.

The measure can lead to reduced benefits, despite the added requirement to take part in work-related activities. Benefits may be reduced for couples if one individual is on IB and the other is on income support and jobseeker’s allowance, because the disability premium will not be payable after 52 weeks. Again, that is thought to encourage the inactivity of partners, and it goes against the rhetoric that disabled individuals want to work. Such individuals in the work-related activity group will lose up to £25 per week. Individuals may lose out on top-up benefits, such as free prescriptions and legal aid, until 2014, when the benefits will have caught up through uprating.

Citizens Advice has shown that individuals on contribution-based ESA will no longer be automatically passported to housing benefit, council tax benefit, free prescriptions and other health benefits. Some 58 per cent. of their earnings above £20 will still be clawed back from their housing benefit and council tax benefit, and, under an existing means-tested benefit, they would be passported to full housing benefit and council tax benefit. The Disability Benefits Consortium estimates that an income-based ESA claimant, paying £100 a week in rent and £15 a week in council tax, and earning £80 a week through permitted work, will be more than £2,500 better off than an individual on contribution-based ESA in the same circumstances. It concludes that that flies in the face of the traditional perception of national insurance contributions, which should not allow individuals to be left much worse off because they have not made any contributions.

Additionally, many voluntary organisations use entitlement to a means-tested benefit, such as income support, as an indicator of low income, leading them to offer individuals extra financial help, but again, that is unlikely to be available. Some of those benefits, such as housing benefit and council tax benefit, can be claimed by individuals with further means-testing, but that is intrusive and adds to costs. Why can they not be automatically passported to those benefits? The social fund, a further education fees waiver, free or reduced pest control costs and other benefits, are unavailable to those not on an income-based earnings replacement—those on the contribution-based ESA.

Furthermore, the allowed income earned by those on a contribution-based ESA will be taxed above £20. Currently, there is a huge problem caused by rising unemployment and a lack of space in the job market, so what will happen to those people? A huge additional work load will be placed on the Department for Work and Pensions as it reassesses all existing claimants on incapacity benefit and income support in 2010. What changes do we want? I hope that, today, the Minister will give us some hope of seeing changes to the regulations.

Citizens Advice suggests that a £1 disregard should be applied to contribution-based ESA for the purposes of the means test. It would be simple to administer and relatively easy to explain to claimants, allowing the two components to be paid at the same rate, ensuring that claimants who have no income other than contribution-based ESA would be eligible for an income-based benefit top-up, and automatically passporting them to other entitlements. That suggestion was made by my hon. Friend the Member for Cardiff, Central (Jenny Willott) in a similar debate last year on Statutory Instrument No. 1554, the Employment and Support Allowance (Consequential Provisions) (No.2) Regulations 2008. It would push the income of individuals receiving contribution-based ESA below the qualifying threshold for means-tested benefits by £1, as they would not be passported.

The Minister could also consider offering a means test to individuals on contribution-based ESA, and allow their benefits to be marked with that information so that they could be passported without being on an income-related benefit. The Disability Benefits Consortium certainly favours that policy. Following means-testing, individuals might also elect to be awarded income-based ESA, rather than contribution-based ESA, but the Department would have to provide the option of switching if individuals were no longer eligible for the income-related ESA. Further council tax benefit and housing benefit regulations need to be changed in order to disregard earnings from permitted work under the ESA regulations, and the DBC also supports that. The basic rate of ESA must be increased to at least the equivalent of current rates of income support and incapacity benefit—in line with the Government’s promise.

Part 5 of the regulations deals with limited capacity for work, assessment and work capability. A new test set up by the ESA, the personal work capability assessment, will replace all tests for statutory sick pay, IB and IS. It is supposed to make it easier for people to re-integrate with employment, because, in order to be excluded from work, it must be unreasonable for them to undertake “work-related activities”. The IB capability test is already the most rigorous welfare test in Europe, and it is not always thoroughly and accurately applied. The new work capability assessment is designed to be even stricter. Again, there are concerns about that.

The Child Poverty Action Group is concerned that some of the most severely disabled claimants may be subject to unnecessary stress and difficulty in the assessment of their entitlement to ESA, because the regulations do not provide that they should be automatically treated as having a limited capability for work. In the Green Paper “A new deal for welfare: Empowering people to work” the Government expressed their intention to reduce the number of people on ESA through “prevention and proactive intervention”, not through the narrowing of the eligible group.

The Disability Benefits Consortium has estimated that 40,000 children could be affected by the resulting fall in income for their family because of these new regulations. That contravenes the Government’s policy of reducing child poverty and the promise to “child poverty-proof” every departmental policy given by the former Secretary State for Work and Pensions, the Secretary of State for Defence, and confirmed by the then Minister for Employment and Welfare Reform, the Secretary of State for Scotland.

The new assessment is supposed to take greater account of those with mental health issues and learning disabilities. The scoring system for mental function has been changed to prevent the bias against individuals with mental health problems. The charity Mind has commented:

Sets of key regulations relating to that were put before Parliament when the 2007 Act was passed. Again, I contrast that with my earlier points. It illustrates the importance of parliamentary scrutiny when such major changes that affect people’s lives are being introduced. What about people with hidden or fluctuating disabilities? Tests can provide an inaccurate snapshot of a person’s condition. People with mental health problems need more long-term assessment or evidence from their personal physician rather than from doctors who are drafted in for the assessment.

Regulation 19(3) bases the assessment on a points system, providing tick boxes for doctors, and not the flexibility and subjectivity which we believe they need to make adequate assessments of a person’s mental disability. Individuals may be called for a medical exam under regulation 23, even if they have submitted medical evidence to support their claim of limited capability for work. What sort of stress and anxiety is that likely to cause for increased numbers of people?

The examination will be conducted under the provisions of schedule 2, which sets out the points-based system. For example, someone who cannot walk more than 100 m on level ground without stopping or severe discomfort will not qualify, whereas an individual who cannot walk more than 50 m on level ground without repeatedly stopping or severe discomfort will. We should ensure that there is an independent analysis of work capability assessment outcomes and proper monitoring of whether people who are entitled to the benefit are being refused it. Rather than having to undergo further testing, individuals on the support component should automatically be treated as having limited capability for work-related activity if they suffer from debilitating conditions, such as no voluntary bowel control, or no capability to eat or drink without assistance.

On Jobcentre Plus and the changes announced under regulations 54 to 62, individuals who have the capacity to work are required to attend work-focused interviews. We were told in a statement before Christmas that there would be additional funding. So far, the Government have invested £1.1 billion in the scheme, which has enabled 64,000 individuals to return to work. People going through Jobcentre Plus will be provided with support to get into full or part-time work where they are capable of doing that. With rising unemployment and the closure of some Jobcentre Plus centres, the remaining centres are already overstretched and the new burden may therefore cause problems. Furthermore, the emphasis on personal advisers is dependent not only on increased funding but on increased flexibility and authority to enable those individuals to react to the complex and delicate circumstances of many disabled individuals, especially those with mental disabilities whose illness may be difficult to understand yet may necessarily prohibit them from working.

Carers UK is concerned that carers in receipt of ESA do not have the right to have their work-focused interviews waived, as they currently do with pathways to work. Interviews can be deferred but not waived, and I ask the Minister to consider including some flexibility in the new system.

The new system is extremely complex. Jobcentre Plus staff need more training on ESA before it comes into effect, otherwise both they and claimants will be left very confused as to where they stand. The Department for Work and Pensions’ consultation events on the interagency disability educational awareness showcase—IDEAS, which is the new disability employment programme to be introduced in 2010—were described by the British Association for Supported Employment as limited. There is concern about the effectiveness of the consultation.

Sanctions will be imposed on individuals who do not comply with the ESA regime. If the non-compliance is within the first four weeks, individuals may lose half of their work-related activity component, rising to 100 per cent. after four weeks. There is a lack of information and understanding; that has long been a problem with the Government’s welfare reform programme. Will individuals be adequately informed of their rights and obligations? We are concerned about that, given the pressures on Jobcentre Plus.

Furthermore, as the Child Poverty Action Group points out:

and there is a lack of clarity about how protection

The DWP report “Qualitative research exploring the Pathways to Work sanctions regime” concluded that sanctions hit the socially deprived and isolated the hardest, worsen existing health problems and provoke new mental health problems, rarely improve positive engagement and are poorly understood. Those sanctions, and their negative consequences, are applied until a work-focused interview is attended, which may take a substantial period of time to organise.

The huge changes are required not only by the individuals but by the employment culture in general. Co-operation by employers is necessary if individuals are to comply with the regime, but how will that be organised? John Cridland, the deputy director of the CBI, has warned:

A 2006 survey by the Chartered Institute of Personnel and Development found that one in three employers say that they deliberately exclude people with a history of long-term sickness or incapacity when recruiting staff. We want to see people helped back into work, but we do not believe that that bludgeon-like process is the correct way to go about it.

On the regulations regarding disabled students, during the passage of the Welfare Reform Bill, the Government promised to protect the existing rights of students on incapacity benefit when the changes to the employment and support allowance were introduced. Lord McKenzie made a statement on that in the Lords in February 2007. Under IB, full-time disabled students are allowed to claim income support if they have been incapable of work for more than 28 weeks, are registered blind, or qualify for a disabled student’s allowance because they are deaf. Under ESA, only those entitled to disability living allowance will be able to study full-time, thus increasing the barriers for disabled individuals in education. If we are to reduce the barriers to education suffered by many disabled individuals, long-term ESA claimants must be allowed to study full-time courses, as they can now. Many individuals with ill health or disability do not receive DLA but still have chronic ongoing health problems that leave them incapable of working. A test that decides someone’s care and mobility needs should not be applied to decide their ability to work.

Simplification is one of the Government’s claims. They justify the regulations because of a need to simplify the system of benefits that are available to those who are not able to work due to health problems, but the complexity remains in protecting vulnerable customers, so that is a self-defeating argument.

Perhaps this is just a money saving exercise by the Government to get individuals off IB and IS. It appears to abandon the Freud report, which requires long-term investment to enable people to overcome hurdles to work. There are anticipated savings of £1.1 billion over the next 10 years—a 10 per cent. reduction in the IB caseload, which is 250,000 households. In the Lords, Lord Kirkwood questioned whether the DWP has got the money from the Treasury that it needs to fund the scheme. Is this just a money-saving exercise?

There are hidden costs to ESA, which will cost more than £400 million over the next five years. There will be an increase in appeals and appeal hearings when claimants are denied ESA. That works out at £9 million per annum, and flies in the face of Government claims that individuals on IB and IS want to work. It demonstrates the Government’s lack of faith in their own new personal capability test, and 60,000 more people a year will fail this new test.

Some 57 per cent. of IB decisions are overturned, and that figure increases to 70 per cent. when individuals are represented by advisers. In addition to the money wasted on appeals, delays are introduced, preventing individuals from receiving benefits that they desperately need. For that reason, the assumed high levels of appeal should not be built into the system. Disability charities estimate that the number of appeals has been significantly underestimated and will lead to an increase of 15,000 to 20,000 people a year on JSA—more work for Jobcentre Plus. With rising unemployment and cutbacks in offices already, how are they going to get the service that they deserve?

We need assurances from the DWP that it will invest the savings on the benefit spend in training for Jobcentre Plus staff and increase ESA support rates and allowances so that the cost saving is not a focus of the ESA regulations, but a proper support for disabled people wishing to re-enter employment.

Mr. Mark Harper (Forest of Dean) (Con): As always, it is a great pleasure to serve under your chairmanship, Mr. Chope.

Several members of the Committee—and some of the staff here—also served on the Committee that considered the Employment and Support Allowance (Consequential Provisions) (No. 2) Regulations 2008 last October, and I fear that they may experience dÃ(c)jà vu as they listen to some elements of our proceedings. I spoke at length in that debate, and we covered a lot of these issues in depth, so I shall attempt to be a little briefer today. The hon. Member for Rochdale was not present for that debate, but the hon. Member for Cardiff, Central covered a number of issues that the hon. Gentleman fleshed out today.

Before I move on to the detail of the regulations, it would be helpful for the Committee to see matters in context and to look at the welfare reform agenda and the problem that the regulations seek to address. I shall attempt to do that briefly. Since we debated regulations on the employment and support allowance last October, the economic situation has taken a significant downturn. There are now 1.8 million people out of work. We are likely to see more people flowing on to the employment and support allowance because the employment market is more difficult and they might find it more difficult to get into work without the support provided by that allowance. The regulations have become more important because they are likely to apply to more people, in a more challenging environment. Therefore, hon. Members need to take even greater care that the regulations and provisions for getting people back to work are more effective.

The regulations came into effect as the result of the introduction of the allowance and of the 2007 Act. There was broad consensus that that was the right direction to move in, and that consensus remains in place. The new emphasis of the employment and support allowance on what people can do, as opposed to what they cannot, is welcome and even more important now we are entering a difficult economic period. More effort, not less, will have to be made to help people to get into work. We support the expansion of the pathways to work programme and hope for a successful and flexible new deal roll-out. We are pleased—the Minister knows this because I have said it before—that the Government adopted into last year’s Green Paper a lot of the proposals in our green paper. In the not-too-distant future, we shall be debating the new Welfare Reform Bill in the House.

Finally, it is worth reminding—or asking—the Committee why it has taken so long to get here. The Government inherited a sound economy and benefited from a decade of economic “good luck”, according to Tony Blair. It is disappointing that more progress has not been made on getting people off incapacity benefit—the precursor of the employment and support allowance—and into work. Sadly, there are 2.6 million people in the UK claiming incapacity benefit or ESA. Indeed, the number of working age claimants has increased by 70,000 since 1997. So, over that period of economic growth, the position has got worse rather than better. Yesterday, the Secretary of State gave evidence to the Select Committee on Work and Pensions about the Department’s response to the economic downturn. Having read his remarks in detail, I do not think that the Department has grasped the extent to which the welfare reform agenda will become much more difficult, given the very challenging times that we face.

There has been a great deal of anxiety among disability organisations and many of the people whom the regulations will affect, and that has not been allayed by the Government’s reassurances. Those affected do not think that the regulations do what they say on the tin, which is why this debate is helpful, as was the one in October. Given that the employment and support allowance has been in force for a couple of months, it will be helpful if the Minister tells the Committee about how things have gone and about Jobcentre Plus’s experience of rolling it out, and if he gives us some of the initial findings.

I shall move on to the specifics, which I am afraid, Mr. Chope, are rather similar to those that I raised in the debate in October, but I will attempt to be more brief. I will address the ministerial responses given both in Committee and in the letter sent to the Chairman of the Committee. Those responses did not address the questions that were asked, so I am sure that the Minister will forgive me if I raise them again.

When the 2007 Act was going through the House, Ministers made it clear that the rates of ESA would be higher than those for incapacity benefit. Ministers have fallen back on a new convention, in that because the current ESA rates are above the rates of incapacity benefit that prevailed when the ministerial statement was made, the Government have not broken their promise. That is a very novel reading of history. We raised it at the previous Committee, but in the Minister’s letter to the Committee, dated 13 November, he simply repeated the phrase:

That did not add anything to the debate in the other place in May 2008, and it did not address the question of why many people think that Ministers have breached at least the spirit of the 2007 Act. When the former Minister for Employment and Welfare Reform, who is now the Financial Secretary to the Treasury, was giving evidence to the Select Committee on Work and Pensions, he confirmed that he could not tell the Committee that every person would receive more on ESA than they would on IB because that was not the case. He also said:

Finally, he confirmed that there

We have not received a satisfactory answer. ESA was supposed to be about giving people not less money, but more support. Ministers have not satisfactorily addressed that. This Minister will know that a number of organisations, such as the Disability Benefits Consortium, gave detailed and considered examples in their written evidence to the Merits of Statutory Instruments Committee at the beginning of 2008 about how people can be up to £400 worse off in the first year in which they claim the benefit.

John Penrose (Weston-super-Mare) (Con): As someone who was involved in many of the Committees that studied the original legislation as it went through its early stages, I can give my hon. Friend an assurance about the situation. Department for Work and Pensions Ministers painstakingly and impressively compiled a broad-based coalition of support across the political spectrum, of which many organisations outside the House greatly approved. Many of them now feel seriously misled. The Government have changed tack, which is ascribed, I am afraid, to a battle between the DWP and the Treasury, which the Treasury has clearly won. The DWP is thus having to go back on the original promises that it made in good faith to people outside the House.

Mr. Harper: I am grateful to my hon. Friend for that explanation and the extra detail. It is particularly pertinent because, as I mentioned, we will be debating the new Welfare Reform Bill shortly, which will involve feedback from a range of disability organisations. It would be unfortunate if the experience that he described of feeling let down over promises colours the debate on the new Bill because it is important to have a consensus on these issues across the parties. I will not address that point any further because we dealt with it in considerable detail last October.

The second point that I want to raise, to which the hon. Member for Rochdale also referred, is the fact that ESA effectively penalises those who have worked. Those people on contribution-based ESA are not automatically passported on to additional benefits, and that is not right, because those who have worked and made contributions should not be penalised. The Government have accepted that there is a problem. When the former Minister for Employment and Welfare Reform gave evidence to the Work and Pensions Committee in July 2008, he indicated that he was aware of the concern and said:

the day the regulations came into force—