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Lord Mackay of Ardbrecknish: It is extremely difficult to research behavioural aspects of such a matter. In any case, the noble Earl asks me to do the up-rating. I return to my original point: if the up-rating takes us to £16—a point made earlier—it would cost a considerable sum. I do not believe that that is the best use for the amount of money that we can find in the social security system.

Baroness Hollis of Heigham: How does the Minister know that if he has not done the modelling referred to by the noble Earl, Lord Russell? If by increasing the bonus there were X number of additional people willing to work, and therefore not so dependent on income support, the proposal would pay for itself. But we do not know how that balance would work; we are speculating.

The present situation is that a single person working fewer than 24 hours per week is only allowed to retain £5 of that against the income support payment, if he is on low

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wages. That is £1 per day if he works a few hours every day. I believe that the cheapest single fare on the underground is £1 so if that person travels by underground to a job in London, as I understand it he will have to pay £2 a day just to work there. That is £10 a week on fares at the cheapest rate. That is to say nothing about appropriate clothes. The Minister is very "up front" and gung-ho about appropriate clothes, appearance and behaviour when confronting an employer. Where will the money be found for that from the £5? Where will the underground fare come from? Where will that person find the additional cost of buying a lunch, even from a sandwich shop, as opposed to having lunch at home? Why should anyone seek to work if all they can retain is £5 and, as a result, they are out of pocket?

If the Government assume that people are economically rational—and that is the basis of arguments about targeting, perversity and so on—they must assume that people sit down and say: "How much will it cost me to work? A minimum of £2 a day on underground fares and, say, a modest £1.50 in addition for lunch. I need to retain £15 a week even to be within reach of not being worse off. What am I allowed to retain? Only £5! Why, therefore, does it make sense for me to do what the Minister would like and seek work?"

I am sure that the Committee will regard my argument as unanswerable. I believe that it is. We do not know how many additional people would come into work as a result of the amendment. I believe that we would all agree that we need research and modelling. Only the department can do that.

It is odd that the Minister's enthusiasm for the proposal when he first came into office did not extend so far as seeking adequate information-based answers to allay his anxieties. He was easily deflected by merely being told that it would cost money.

The second government argument was the cost: £25 million for JSA; £90 million if we included housing benefit and council tax benefit. At Committee stage in the other place, the figure given to the Committee by the Minister, Ann Widdecombe, was £75 million. So the figure has increased by £15 million in as many weeks. The cost is £25 million for JSA. So far as I can see at the moment the budget on unemployment benefit is £1,260 million. We are talking about an additional £25 million. The Minister cannot tell me that that figure of £1,260 million is not rounded up, give or take £1 million here, £5 million or £10 million there. Of course it is. The Minister knows that the figure of £25 million on a total unemployment benefit of £1,260 million, before we come to the £16,000 million spent on income support, would be lost in the total equation. It is a rounded off figure by the department and we all know it.

The proposal would mean that the disregard would in future be RPI'd. Everyone in the House and in Parliament accepts that benefits should be RPI'd. Income support is raised each and every year; old age pensions are raised every year according to inflation. Why? If we did not do that, they would effectively be cut. When a disregard is not RPI'd, each and every year, effectively it is cut. So it is unfair because we are cutting the disregard. It is not expensive. The amount would be lost in the small print. So far as I can judge, it would help to encourage people to

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work who quite reasonably say that they cannot afford to go to work on an extra £1 a day. I repeat, that £1 will not even cover the cost of the single underground fare. I ask the Minister to comment.

Lord Mackay of Ardbrecknish: As all Members of the Committee know, the noble Baroness believes that all her arguments are unanswerable. That is usually the introduction when she replies to me. They may or may not be unanswerable, I believe that most are capable of an answer, but they certainly cost more money. I have not yet kept a tally of the additional expenditure which the noble Baroness would have imposed on the Treasury, if all her unanswerable amendments had been accepted by myself. The till would be ticking up substantially and that is where priorities arise.

I invite the noble Baroness to consider some of her unanswerable arguments and ask herself what priority she would give this proposal. Every suggestion of hers seems to have top priority. I made the point that while I saw some advantages, I was persuaded that if the money were available—which I confirm would be £75 million if up-rated since 1988—it would be better spent in other ways. One of the other ways in which we propose to spend the money is on proposals like the back-to-work bonus. Such suggestions are more sensible than an increase in the disregard.

I notice that the noble Baroness said that the proposal would pay for itself. I do not believe that it would. It would only do so to the extent that someone might take a little part-time work who did none at the time. The dead-weight—as I inelegantly described it—involves the £5 extra which someone already in work would have added to the present £5 disregard. That would cost the Exchequer exactly £5, because £5 more in benefit would have to be paid. So I am afraid that the one thing it would not do is to pay for itself.

The idea that the increase is needed to encourage people to take part-time work when they are unemployed does not hold much water because many people take part-time work. Many unemployed people see the benefits in the longer term of retaining a link with the labour market. I believe that the £5 disregard, which should stay where it is, in addition to the back-to-work bonus, which we will come to later, represents a positive way to encourage people back to work and to help them at the time when they go back to work. With that additional explanation, I hope the noble Baroness will withdraw her amendment.

Lord McCarthy: The Minister said that everything the noble Baroness suggested cost money. He does not know how much, but he is certain that we cannot afford it. If certain things happened, if the elasticities were in a certain direction, it would cost nothing at all. When the noble Lord first went to the department he had a good idea. He was put off by simulations, dead-weight arguments and knock-on effects. Statisticians always back people off with simulations, dead-weight arguments and knock-on effects. The only way to challenge them is by empirical experiment. If the noble Lord would do what we ask or accept the much more modest suggestion of the noble

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Earl, he may well discover that nothing at all would be lost. But he cannot find out merely by simulations, dead-weight analysis and knock-on effects.

4 p.m.

Earl Russell: The Minister is right when he says that one must count the costs. But if he is going to use his calculator, can he please try to use it correctly? The priorities must depend on the relationship between the costs and the savings. Calculating the savings is extremely difficult, and one may well get it wrong. However, will the Minister agree that a calculation made without the savings is certainly wrong?

Lord Mackay of Ardbrecknish: Elasticity, I regret to tell the noble Lord, Lord McCarthy, tends to pull in both directions, or sometimes in every direction if the elastic is not well held at one end. I have very little to add to the arguments I made. Savings costing is important as well. But the fact is that any logical look at this matter will reveal that the majority of people who would gain from this extra £5 disregard would already be in some form of part-time work. Therefore, if the intention of the amendment is to encourage them to take up part-time work, that encouragement does not seem to me to be needed.

The costs are important. We have increased costs in this field, and some of those increases are in the Bill. I had a number of ideas when I went to the department. We shall come to some of them later today. I believe that they offer better value for money than does this one. Not all one's ideas are good when one looks into matters deeply, although I realise that that is a view that I alone may hold and that the noble Baroness may not.

Baroness Hollis of Heigham: The Minister may regret admitting that he thought that this was a good idea when he first replied since at a later stage we shall obviously wish to pursue the matter. He asks what are our priorities. I would have thought that our priorities are the same as those of the Government; namely, to encourage people back into work. The difference between us is that we believe the most effective way of doing so is to increase the demand for labour and not simply to coerce people into an over-stocked labour market.

Nonetheless, we want to encourage people back into work. One of the well tried and tested ways of doing so is for those who are currently unemployed to acquire a part-time job. They go into the labour market; they learn the skills; they are available to learn about the openings for longer hours and full-time work. We all accept that; it is common knowledge.

The Minister says that the costs would be excessive. I accept that the cost of £25 million on a total budget of £1,260 million would be additional in so far as it would be paid to people already in part-time work. But let us look at the priority; namely, bringing those who are unemployed into part-time work. Let us say that such a person is offered a part-time job paying £40 a week. He currently receives £46.50 a week as a single person over 25 on income support. He would currently lose £35 of that £40 in benefit. He would retain only £5 of it and

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the rest would be income support. He thinks about it and says, "No, I can't afford it. I can't afford the cost of the fares". It means that the Government are paying out his full allowance for income support (£46.50) instead of paying him just £10, because the rest would have been netted off his part-time earnings. The Minister cannot tell us what the net cost to JSA would be of such people coming into work. All he has given us—the noble Earl, Lord Russell, is absolutely right—is the gross cost of adding it in, assuming that most of that money would go to people already in work. What he has not done is look at the savings on those who are currently unemployed who would come into work and, as a result, to whom the Government would not have to pay the full income support amount because they would themselves contribute £20, £30 or £40 of that amount from their own earnings. Can the Minister give the figure for that? If he cannot, he has not addressed the central issue of the amendment.

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