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6.10 p.m.

Baroness Hollis of Heigham: My Lords, I thank the Minister for that Statement. We agree with much in it. Clearly, fraud must be tackled and clearly we must use benefits to encourage people into work rather than bar them from it.

I should like to make a general point before coming to the three more important issues that were raised in the Minister's Statement. I think that we all agree—we must —that the problems are very difficult, but in my

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view they are made much worse because the policies of the Department of Social Security, the Department of Employment and the Treasury do not reinforce each other but undermine each other. I shall expand on that.

The Government are seeking to contain DSS expenditure essentially by taking people off contributory non-means-tested benefits—even though they have paid for them—and putting them on to means-tested benefits. The Government are moving people off invalidity benefit and, if they are not eligible for incapacity benefit—and 200,000 people will not be—putting them on to income support.

The Government are also seeking to move people from unemployment benefit, which is a 12-month benefit, and on to the jobseeker's allowance which after six months will be means-tested. They call that "targeting", but it means that for every pound that the claimant might earn (or that his or her partner does earn), the couple loses a pound in benefit. I shall take the example of a couple where the husband is in work and the wife is working part-time. If the husband loses his job, his wife has to stop her part-time work, otherwise her husband will lose benefit. The result is that if one person loses a job, both do; if one person goes on benefit, both do. The family then goes from being work-rich to work-poor, doubling unemployment at a stroke. That is the direct result of means-testing and targeted policies.

Then, as we see in today's Statement, the Department of Employment and the Treasury come along with various fancy schemes, many of which are perfectly welcome in their own right, such as the rolled up bonuses or the 24-hour rules, to coax back into work the same people the DSS has just helped to exclude from work because of the means-tested benefit system that the Government have constructed. That is perverse and costly because once a couple is on benefit, they will need even more benefits to pay their 100 per cent. housing benefit bill, their council tax bill and the lot. That will end up costing more in total benefits than would have been the case if the couple had remained on contributory and non-means-tested benefits in the first place. We ask the Government to start thinking this through because at the moment their policy is not only stupid but undignified and very expensive.

I turn now to the specific proposals in the Statement. The first related to VAT on fuel. We firmly believe that VAT on fuel should not be increased to 17.5 per cent. especially, notwithstanding the Minister's words, as the compensation package is both inadequate and incomplete. The Minister said that he will implement in full the second stage of help with VAT, but that does not mean that that will cover the cost of imposing VAT on fuel.

I say that for three reasons. First, the people it is designed to help are precisely those with the greatest need of heating in their homes, such as the elderly. All the estimates show that the VAT rebate will meet only half the real cost of the imposition of VAT on fuel because those affected are heavy users of heating.

Secondly, those who do get compensation will not, as the Minister seemed to indicate, get a clear increase of 50p for a single pensioner and 70p for a couple; instead

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they will get what remains after the Rossi index has top-sliced their normal uprating—in other words, we estimate that the increase will be 25p for a single pensioner and 30p for a couple. I have to say that the Government's way of presenting the figures must be deliberately misleading pensioners.

Thirdly, those in equally dire financial need, such as the very low paid and, above all, those disabled people who have only the disability living allowance, will not get any compensation at all to cover the added cost of the imposition of VAT on fuel. Therefore, somebody with severe multiple sclerosis or severe rheumatoid arthritis who needs 24-hour heating will face increased heating bills of £2 or £3 a week with no compensation for the VAT. I ask the Minister to defend the Government's position and to say why disabled people receiving only disability living allowance will not have their VAT reimbursed, as will pensioners and other groups, while the chairman of British Gas is at the same time giving himself a pay rise of over £200,000 a year. That is deeply wrong and deeply offensive.

The second proposed change that was announced in the Statement relates to housing benefit. Again, we welcome aspects of it. We welcome the smooth-over of the four-week period. That is right. We welcome the fact that the Minister is proposing that tenants should know their housing benefits in advance. That is right. It is understandable that the Government want to cap housing benefit. But let us be in no doubt about it: like so many other problems, this is a problem of the Government's own making. The Government decontrolled private sector rents in 1988, deciding, as Sir George Young said, to let housing benefit take the strain. That has cost us as taxpayers an additional £7 billion in rent allowances since. However, the Government are now saying that housing benefit will not take the strain and that they will not allow it to finance reasonable market rents but only the average rent in the locality plus 50 per cent. of the difference. That is rent control through the back-door.

The Minister talks glossily about tenants' incentives to choose "cheaper property". What world is he living in? Tenants are in no position to choose; it is a landlord's market. I know that tenants are grateful simply to find somewhere clean, decent and safe. What will now happen? Does the Minister really assume that landlords will reduce their rents to the rent officer's judgment of the average rent in the locality? Already most landlords prefer not to let to tenants on housing benefit. If they have to cut their rent as well, they certainly will not let to such tenants.

What happens then? Tenants on housing benefit will either be unable to take the property and will become homeless; or they will seek to top up their rent out of income support, go into debt and then become homeless; or the local authorities will be expected to pay the 50 per cent. difference, especially if children are involved who might otherwise be taken into care. That will mean either a charge on council tax payers (local authorities may be capped) or on council tenants (who themselves will have to pay higher rents to gain the higher rent allowances and who will therefore need more housing benefit themselves).

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Will the Minister please tell us how much the proposals will save and who or what he now expects to take the strain, if not housing benefit? Will it be the landlord, by cutting the rent? Unlikely. Will it be the tenants who will see their income support top-sliced? Unaffordable. Will it be the local authorities, which are capped? Impossible.

The Government are also introducing new proposals on mortgage insurance about which we are very worried because they are likely to increase homelessness. There are real difficulties here. The Council of Mortgage Lenders says that 57 per cent. of home owners receiving income support help with their mortgage are not in work. They are disabled, single parents or retired. They cannot get insurance. Those who most need insurance will, by definition, be those least able to get it and least able to afford it. Will the Minister please tell us who will take the strain? If private tenants are not going to be able to have access to housing for rent, if council houses are not being built by local authorities and if people are unable to afford to keep up their mortgages, who will meet, face and take the strain of the resulting problem of homelessness which the Government are surely creating?

Finally, the Government have a series of proposals in the Statement on employment and moves back into work. The Government are quite right. The social security system, as at present constructed, produces a double problem. There is the employment trap, that is, getting from benefit into work. And, once in work, there is the poverty trap; that is, of increasing your earnings, once in it.

Clearly, we welcome some of the detailed proposals—the national insurance holiday for the long-term unemployed, which was a Labour Party idea in the first place, the rolled-up bonus, and the work trial schemes. They are intelligent. We also welcome the pilot schemes of work-start. The trouble is that we have little confidence in the Government's ability to deliver. To take Restart, for example, out of 850,000 people who last year were interviewed and counselled only 1.5 per cent. went on to find jobs. Why? The problem is not lack of skills, although that does matter. It is certainly not motivation. It is the absolute lack of jobs in the economy for male manual workers needing full-time work. We have seen our manufacturing industry in dereliction; we have closed down our construction industry; we have capped local authorities, who can no longer provide the infrastructure and public service jobs which such men previously did. It is not surprising.

The Government propose increases in family credit premium for those in work, and that is welcome. They are also considering extending family credit to people without families; that is, single people and couples without children. Can I raise some worries on that? I believe the intentions of the Government are benevolent; I am sure they are. However, the prospects are worrying. What the Government are saying is not that employers should pay a minimum living wage but instead that the rest of us, as taxpayers, should top up a wage below the living wage to make it so. Such a scheme could cost £490 million a year. A similar scheme in the 1790s was called Speenhamland. It is quite perverse. On the one

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hand, the Government are placing burdens on employers such as statutory sick pay, maternity pay and possibly pay for industrial injuries, which should be a national insurance and government responsibility. On the other hand, what should be the responsibility of employers—adequate wage levels—has been taken over by the Government, who will top up wages from your taxes and mine. Far from employees, it will be employers who will be sponging off a dependency culture.

Family credit is sensible if attached to a minimum wage: then it tops up family costs. Instead it is going to be used to top up wages themselves. The implications for public expenditure and the blank cheque it implies for wage levels and for the Treasury are frankly mind boggling. Employers will be able to press wages down even below income support levels, knowing that family credit and tax payers—you and us—will take the strain. I am amazed the Treasury will wear it.

We do not under-estimate the difficulties the Minister faces, but I have to say that they are largely of the Government's own making. The Government decontrolled private rents, and there has been a crisis in housing benefit. The Government have increased means-testing and there is therefore a crisis in employment and poverty traps. The Government have scrapped wages councils and therefore a minimum wage, so we are going to have a crisis over family credit. As for VAT on fuel, I do not believe the Government will be forgiven. In too many fields in this Statement the Government's policies are perverse, uncivilised and costly; they simply will not do.

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