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Social Security Benefits Up-rating Order 1995

5.17 p.m.

Lord Mackay of Ardbrecknish rose to move, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee].

The noble Lord said: My Lords, in moving this draft order I wish to speak also to the other four draft orders. These orders build upon the Government's sector-by-sector reform of social security. Our aims are to modernise our welfare state, to make it affordable and to focus help on areas of real need. Once again we will meet our pledges on the level of benefits.

All the main social security benefits will increase fully in line with prices in four weeks' time. As a result of the uprating, retirement pension for a couple will rise by £2 a week. All pensioner couples without other means will be entitled to more than £100 a week. Pensioners will gain over £700 million, long-term sick and disabled people will gain over £400 million and families over £250 million. In total this up-rating of benefits will cost about £1.5 billion. Our policies have continued to protect those most in need by targeting resources on those who need them most. By the Social Security Select Committee's own calculations the safety net of income support is 15 per cent. higher in real terms than in 1979. The extra help made available to low-income families with children since 1988 is worth £1 billion, and to poorer pensioners £1.2 billion. And since 1979 more than five times as many disabled people receive help with the costs of their care or mobility. That is the measure of our commitment to protecting those most in need. Overall, we are spending £84 billion on social security this year. To pay for it costs every working person £15 per working day.

Spending is forecast to grow by 1.3 per cent. a year in real terms over the next three years. After that, growth is expected to resume at an underlying rate of 2.1 per cent. a year up to the end of the century. But even that is significantly lower than the 3.3 per cent. forecast 18 months ago in Growth of Social Security.

By the year 2001 spending on social security is projected to be almost £8 billion less than forecast in Growth of Social Security. Lower unemployment accounts for a quarter of that reduction, as unemployment is less than previously assumed. More than half of the reduction is due to policy changes as reforms take effect.

The need to contain the cost of social security is not unique to the United Kingdom, but many governments are still not looking beyond funding by the state as the

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solution. Funding by the state means funding by businesses and taxpayers. It damages competitiveness and threatens economic growth. Our approach reduces the burden on taxpayers and protects those most in need while giving more opportunities for individuals to provide for themselves. That is what we are doing in our reforms in relation to pensions, unemployed people, families, lone parents and disabled people.

We are continuing our reform of the sickness and invalidity benefits with two new measures from April. First, the new incapacity benefit will focus on those who are genuinely incapable of work through a more objective test of incapacity. Secondly, one of the orders before the House today will introduce from April a new scheme to give all employers help if a large proportion of their workforce is off sick at any one time. It will be straightforward to operate, will protect cash flow and will continue to give small businesses the lion's share of statutory sick pay reimbursement. The new scheme has been welcomed by the CBI, the Forum of Private Business, the Federation of Small Businesses and the TUC.

One area where spending is still growing fast is housing costs. The cost of support for housing through housing benefit and income support has more than doubled in real terms since 1988-89. It now amounts to £11 billion. It is essential to keep costs under control. Therefore, in November my right honourable friend the Secretary of State announced major reforms. They will give private sector tenants more interest in the level of rents, putting unreasonably high rents under pressure. They will give home-owners more comprehensive protection when they have difficulty paying their mortgages. The present arrangements for home-owners are far from satisfactory. Some 150,000 unemployed people cannot get help with their mortgages. In fact, 70 per cent. of all home-owners would not be covered by income support because they have a working partner, savings or some other income.

We have already begun a process of informal consultation with interested parties for our new proposals. Regarding the changes to housing benefits, officials of my department have already met representatives of the local authority associations, the Institute of Rent Officers and several other interested groups. This week we shall formally consult the Social Security Advisory Committee, which we envisage will go out to public consultation. We shall also consult the local authority associations. It is important that their views should be fed into the detail of the policy, including the working up of a system so that prospective tenants will have an idea of how much housing benefit will be payable before they sign a tenancy.

The Social Security Advisory Committee's consultation document on mortgage interest in income support issued on 10th February invites comments from all interested parties. We are also continuing discussions with lenders and insurers to make sure that the interface between state and private provision works well.

Already one in three new mortgage holders takes out insurance. I am sure that the insurance industry will respond with good quality insurance cover. New products are entering the market all the time and there

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is evidence that competition is driving prices down. Buying such insurance direct now costs an average 4p in every £1 of monthly repayment. I am confident that that will lead to fewer defaults, fewer repossessions and a healthier housing market.

The area of greatest scope for saving has no direct effect on benefit levels. That is why cutting back on fraud remains a priority. Fraud savings are already at a record high. The Benefits Agency identified and stopped fraud worth £654 million in 1993-94. In April it will begin a five-year programme of investment to switch emphasis away from detecting fraud to preventing it happening in the first place.

Most fraud involves false declarations of earnings or circumstances. So the Benefits Agency will be making more checks and more home visits and making better use of information already held on our computer systems to help spot fraudsters. That should deliver substantial savings of more than £2.5 billion over the first three years.

One of our objectives is undoubtedly keeping expenditure under control. Another important objective is to meet concerns about the debilitating effect of dependency on benefit. More and more people are anxious about the prospect of an increasing proportion of people of working age being dependent on the state. Before our reforms the debate was about helping people on benefit. We still aim to do that, but the whole focus of the debate has now moved towards helping people off benefit and into work. The most effective way of raising living standards and the prospects of unemployed people of working age is by helping them to return to work, as we discussed at Question Time this afternoon.

We have been working on that for a number of years. In 1992 we reduced the number of hours required to qualify for family credit from 24 hours a week to 16 hours a week. In 1993 we introduced the family credit helpline so that people could have easy access to information about how family credit and other benefits could make them better off in work. In 1994 we removed one of the major stumbling blocks preventing families returning to work through our help with childcare costs in the in-work benefits. And in April we are making significant enhancements in the disability working allowance to help more disabled people participate in work.

The process of helping people return to work continues with the package which my right honourable friend announced last November. Like the other benefits, family credit will increase in April in line with inflation. For example, the maximum family credit payable to a family with two children aged eight and 13 will rise from £74.05 to £75.40—an increase of £1.35 per week.

But because benefits reduce as earnings rise, someone working 30 hours a week at, say, £4 an hour receives only £3 more than a person working just 16 hours. That is not right. Therefore, from July this year our £10 longer hours premium in family credit and disability working allowance will make full-time work more

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attractive for those working 30 hours or more a week. Those on housing benefit or council tax benefit will receive the full benefit of the extra £10.

From April 1996 people who take a job after six months unemployment will be able to keep their housing benefit at their existing full rate for an extra four weeks. Local authorities will be encouraged to arrange any continuing in-work housing benefit award within that period.

We also aim to speed up the payment of family credit so that people in work will receive that extra help more quickly.

From October 1996 the tax free back-to-work bonus of up to £1,000 will be a considerable help in smoothing a family's income flow on taking up work. A lump sum of up to £1,000 could potentially be paid on top of the back-to-work bonus.

Encouraging employers to take on more unemployed people is another important aspect of one of the orders before us today. The order encourages employers to take on people who are long-term unemployed, who are normally less skilled. This April employers' contributions will be cut by 0.6 per cent. for all employees earning less than £205 a week. In addition, we are encouraging employers to take on more people who have been unemployed. From April 1996 employers will have a one year holiday from the employer's national insurance contribution for every person they take on who has been unemployed for the previous two years.

Finally, we are introducing a radical innovation in social policy. The majority of the long-term unemployed are childless. From October 1996 we shall be setting up a substantial pilot study in eight locations of an in-work benefit for that group which will run for three years. My right honourable friend Peter Lilley will be publishing a consultation document in the spring.

Our package of incentives will help 750,000 people during the course of a year. We will be adding an extra £300 million in benefits and cutting costs to business by £300 million—in all a £600 million package to help people move from dependency on benefits to control over their own circumstances.

The orders before the House today provide for an up-rating of all major benefits and a reduction in employers' national insurance contributions for the second year running. We have met our pledges to pensioners and families. The orders are another important step to improve the social security system. Our plans include a £600 million package to help people out of dependency into work, sensible reforms to curb the costs of benefits for housing and a far-reaching strategy to prevent fraud. They will increase incomes by opportunity, help and incentives. I commend the orders to the House. I beg to move.

Moved, That the draft order laid before the House on 13th February be approved [10th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)

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5.30 p.m.

Baroness Hollis of Heigham: My Lords, as the Minister said, the up-rating statement is mostly routine. It up-rates in the light of inflation. Last November, when we discussed the issues within the context of the Budget Statement, the House had a fairly major debate on almost all the points raised by the Minister. I do not propose to repeat them tonight. Therefore I shall be brief. However, I wish to pick up two issues raised by the Minister before making the points that I had proposed to make.

First, the Minister spoke more widely than merely on the up-ratings before us. He referred to proposed changes in housing benefit and mortgage benefit which are not specifically the subject of today's orders. Perhaps I may re-emphasise the warning given already in this House and in another place that in terms of housing benefit for private tenants any housing Minister would be able to tell any social security Minister that out there it is a landlord's market regarding rent, and tenants are not in a position to shop around for cheaper property of acceptable quality at an acceptable rent. Therefore the hopes and expectations that the Minister for Social Security apparently applies to this part of his policy—I suspect that the Minister for Housing will agree with me—cannot be met.

The Minister referred to withdrawal of income support for mortgages, with the expectation that for many, if not most, in future that cover will be met by insurance companies. I can only repeat the serious warnings given by that most responsible body, the Council of Mortgage Lenders, that the Government's policy of insisting on insurance and the withdrawal of income support will lead to an increase of between 15,000 and 24,000 repossessions over and beyond the current 50,000 a year. In addition, increasingly those areas in which properties are not easy to sell will become virtually red lined areas, as we saw in the 1970s, for which it will not be possible to attract mortgage or insurance cover. Properties will become virtually unsaleable. The Minister's policies may well create the very "sink tank" estates regarding which his right honourable friend the Minister for Housing has spent so much time and energy and so many resources seeking to overcome. Those of us whose portfolios sometimes range across housing and social security wish that Ministers would talk to one another about what happens when one department exports the costs of its policies to another department and therefore subverts what that department seeks to do.

I had not expected the Minister to range quite so widely on the issue. However, perhaps I may pick up this point. The Minister stated that the Government propose a pilot study to extend family credit to those without families. That proposal is no doubt well intentioned. However, I ask the Minister to be aware of the perverse consequences of such a policy. It is an encouragement to employers everywhere to press wage bills and wages down to whatever level they can get away with, knowing that the Government will subsidise the wage bill for them in the name of family credit, if those people have children, and "non-family credit" if they do not.

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It is very odd indeed that, on the one hand, we see a series of national insurance measures—statutory sick pay, no doubt maternity pay and the like—which should properly be funded by the taxpayer pushed on to the employer, whereas the one area of responsibility that one might reasonably expect the employer to provide, a decent living wage, is increasingly being sustained by the taxpayer. It is a rather odd and perverse swapping of functions which in our view is folly.

I wish to spend a little more time on an issue which, so far as I am aware, has not been raised in your Lordships' House for some time. I turn my attention not to benefits which have been up-rated but to the string of benefits (so far as I am aware there are at least 30) which have not been up-rated. I ask the Minister to tell the House why that is so. For example, the widow's payment of £1,000, fixed in 1988 and frozen in 1988, would, if it were prices-linked today, be worth nearly £1,400. If it were earnings-linked it would be worth over £1,500. The payment remains at £1,000. Are widows not worth more than that? Do the Government think of them so lightly that they freeze their benefit at 1988 figures?

Let us take the war pensions disregard of £10 which was frozen in April 1990. It would have been worth £12.45 in prices terms and £12.75 in earnings terms today. Does the Minister think so lightly of war pensioners and of the disregard that he freezes the sum at 1990 figures?

Alternatively, let us take a matter that affects many people: the capital limits for a single person on income support or housing benefit for families on family credit. The sums were fixed in 1988 and 1990 respectively at £3,000, which would now be worth £4,000, or, if earnings related, £4,500. Why have the Government frozen those earnings disregards? In the light of the Minister's remarks five minutes ago, they are precisely the bait that would have encouraged so many people back into work because they could have kept more of their earnings.

What about the disregard for those on unemployment benefit? The sum of £2 per day was frozen in 1982; it would have been worth nearly double that sum if it had been prices-linked today. What about the £5 earnings disregard for income support which was frozen in 1988? It would have been worth £6.85 today. The occupational pension limit for unemployment benefit was frozen at £35 by this Government in 1981. If the sum were prices-linked today it would have been worth £72.60, or £95 if earnings-linked.

Are widows, war pensioners and those who are hit by the capital limits so unimportant to the Government that they have frozen those benefits in real cash terms for five or seven years? While forcing more people on to means tested benefit, the Government are freezing the disregards and the capping figures which go with those means-tested benefits so that those means-tested benefits become worth less and less in real terms. Whatever the Minister may say, that policy means a cut in real income to the poorest, for whom every pound counts.

I do not wish to anticipate the debate on the Rowntree Report on widening inequality. We had a trailer today for the debate that we shall have on Wednesday. However, as

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a result of government policy, we now see too wide a gap between those on benefit and those in work. In the 1970s it was clear that benefits reduced inequality and to some degree compensated for it. It is also clear that by the mid-1980s, and especially since 1988, benefits have widened the inequality regarding average earnings. The basic pension was a quarter of average earnings; the figure has now drifted down to 17 per cent., and at the end of the century will be 11 per cent., with all the implications which that involves for the elderly.

We accept that average incomes for pensioners, and for the population as a whole, have risen, and that is valuable. However, it remains true that the bottom 10 per cent. has fallen in real terms and that in all groups such as families with children and pensioners inequality has widened within each sector, as well as within society as a whole. That has not only been reinforced by breaking the link with earnings and therefore increasingly ensuring that those on benefits do not enjoy any increase in the prosperity enjoyed by the rest of us—they stay still in real terms. But it has also extended the range of means testing at the expense of contributory non-means-tested benefit.

The Minister referred to the incapacity benefit and the jobseeker's allowance. The consequence of the measures is that under the Tory Government we have been warping a welfare state into perverse policies which no one can believe are sensible. I give an obvious example. If a husband is in full-time work and his wife is in part-time work and the husband loses his job, then after six months the Jobseekers Bill comes into play and he will be on a means-tested benefit. For every £1 that his wife earns in her part-time job, he will lose £1. He will then stop work and they will move from a work-rich to a work-poor household in which they are both fully dependent on all the other benefits: housing benefit, council tax benefit and the like. In order to spring out of that dependence on benefits, both will have to find work but are unlikely to do so. In other words, for the short-term gain of moving away from contributory to means-tested benefits, the Government have locked family after family into a dependence on benefits from which they can never break free. That is perverse, stupid and folly; it is unkind and indecent.

What saddens me is that since the war and under Beveridge and Nye Bevan, the welfare state and the social security system were designed to reduce poverty and inequality, and to offer a springboard of opportunity. For 35 years, until the early 1980s, the social security system helped do precisely that. As a result of the folly and shortsightedness of the Government's policies, accentuated since 1988 and now with a further rash of perverse social security measures, instead of becoming part of the solution, social security has, to use a cliché, become part of the problem. Almost every new legislative proposal of the Government on social security will make the problem worse. We must rebuild an intelligent welfare state. We have given up the hope that the Conservative Government may do so; we look forward to our opportunity to do so in due course.

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5.42 p.m.

Earl Russell: My Lords, without dissenting from anything that the noble Baroness said—and I shall agree in due course with a substantial part of it—I wish nevertheless to take the opportunity to congratulate the Department of Social Security. This year's up-rating statement is a landmark in ways which we have not entirely perceived. During the past three years, the budget of the Department of Social Security has been under intense pressure, for reasons which we understand. I would not say that there have been no cuts in that time. Under the next government—of whatever complexion—the system may need up to 20 stitches. I believe that the savings through the Incapacity Bill will be illusory, as those from the Child Support Act have been. Nevertheless, the system will not need to be taken into intensive care; it is still working.

Under that pressure, the order marks a quite remarkable recognition which is now a consensus of three parties, or at least two-and-a-half. The consensus is that although the social security budget is clearly alarmingly high—and there is no dissenting from that—substantial savings will not be achieved simply by cuts in social security spending because the people concerned do not cease to exist if they lose benefits.

The Minister stressed the drain on competitiveness of the expenditure. I do not dissent from that. He may have read the article by Gavyn Davis in the Independent, calculating the amount the country spends on what he called "defensive expenditure": burglar alarms, locks, security cameras, insurance. He put that figure at £16 billion and rising. That is also a drain on our competitiveness and we would not advance the country if we went from one drain on our competitiveness to another.

The up-rating marks a recognition that the sums cannot be substantially reduced; the cost to the country cannot be substantially reduced simply by cutting social security. It means that in addition to the humanitarian and economic arguments for significant reductions in unemployment, it has also become an urgent fiscal necessity. That is a conclusion of quite profound importance.

I noticed that at Question Time today the Minister was enjoying himself, congratulating himself on reductions in unemployment. We all share his pleasure in that. He was disappointed that that was not met with more enthusiasm in the House but I must ask him to tell us what he regards as an unacceptable level of unemployment. I did not say "achievable", I said, "unacceptable", because there must be a good deal of new thinking on that before we get anywhere.

On the details of the order, I entirely share what the noble Baroness said about capital limits. I wished to bring up the capital limits imposed this year on the cost of funerals under the Social Fund. I know that the Minister has already given me a Written Answer, but I ask him now seriously to consider up-rating that benefit in the next statement. If we achieve no progress on that front, I shall seriously consider putting down a Motion to resolve, which I may push to a Division. I hope that the noble Baroness's party will put its votes where its mouth is.

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I am also distressed that there is no change in the policy on the differential between income support limits for older people of £28 and the lower age income support level of £36.80 for those under 18. They are not adequate for any purposes. That is not subsistence; it is pocket money. Since we have heard so many justifications, I ask the Minister what is this week's justification.

I also support the questions which the noble Baroness asked about the housing benefit. I shall listen with great interest to those answers, as I shall to the answers to the questions about home ownership. I remind the Minister that insurance is a private sector business; its purpose is to make a profit. In deciding which risks it accepts, it must necessarily take that into account. So those people who will need support most are those to whom insurance will give the least support. If the Secretary of State for Employment is right—as he may well be—that we are moving to a situation where people will change jobs more frequently and more jobs will be part-time, there will be time between jobs. That is a series of changes which would put on our insurance industry a burden which I do not believe it fair to ask the industry to undertake. We do not want more insurance or banking failures, least of all today. So when the Minister says that he is entering into consultation, I hope that by "consultation", he really means just that and will not merely ask how to do it, but will ask interested parties whether he should be doing it at all. I hope that the answers will be listened to.

Fraud is always a standby of the Department of Social Security when it is in trouble with the Treasury. Everybody is against fraud. But I sometimes wonder whether we are in a situation where, if fraud does not exist, it is necessary to invent it. In that context I ask the Minister if he will give the House an undertaking that he will not rely on performance targets for detection of fraud. Relying on performance targets risks generating a situation in which we assume that the fraud must be there and go on looking for it until we can claim to have found it. In that situation there may be some obstruction to the doing of justice. It should be entered into with care.

On national insurance, I welcome the changes that the Minister reannounced. I wonder why he has not further raised the lower earnings limit. Also, since he has ranged into these matters, I ask him again a question that I put to him on the up-rating Statement; namely, whether he can tell us what progress is being made with the jobfinder's grant. It is an imaginative idea and one that interests me. But I cannot discover in how many cases it has been made available; how big a pilot scheme is in operation; and what the results of that pilot scheme may be. If the Minister does not have that information to hand, I should be grateful if he could write to me.

I want to make one small point on the separate order up-rating contributions for share fishermen. Share fishermen are subject to what is known as a tie-up period of eight days, during which they are not allowed to fish. Normally, if you received no income during eight days, you might hope for unemployment pay during the week. But the trouble is that the tie-up period is normally divided between two different weeks. In the

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past the department has taken the line that there is no week during which they are wholly unemployed, and therefore they do not receive any unemployment benefit. My honourable friend Mr. Kirkwood has argued many times that that appears to him to be inequitable. I agree with him. I hope that the Government will give just a little more consideration to the matter.

Finally, I turn to the new statutory sick pay scheme. I thank the Minister and the department for accepting an amendment that was moved by the noble Lord, Lord Jenkin of Roding, to which I had my name. They have listened, and they have been persuaded, and I am glad that they have. But there is still one flaw in the scheme. I thought that the Minister slightly cut a corner by claiming the support of the Forum for Private Business. There is still one point that intensely concerns the Forum for Private Business. There is of course a limit on this. The new formula comes into operation when firms are facing a liability for statutory sick pay which exceeds 13 per cent. of their liability for national insurance contributions payments. The question that is being asked by the Forum for Private Business is whether that limit can be changed without primary legislation. It says that if the answer is no, it is happy with the scheme as it is. But if the answer is yes, it is not happy and would have preferred the other scheme. I gave the Minister notice of that question and I look forward to his answer.

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