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Earl Russell: My Lords, I have resisted the strong temptation to refer to the Opposition's proposals on the under-25s. However, since they have introduced them, will the noble Baroness tell the House whether she thinks that people can live on 60 per cent. of the benefit rates for the under-25s?

Baroness Hollis of Heigham: My Lords, I understand. I believe that the noble Earl is referring to the sanctions attached to the proposals. The sanctions attached to the Labour Party's proposals are clear. If a young person, and only a young person, has available to him all four options--a full-time job, education and training, a voluntary placement or the environmental taskforce placement--and if he refuses all four, then, and only then, would the sanction come into play. In other words, if I may complete the argument, if the full-time job at reasonable pay is on offer but is refused, then the sanction would come into play. But it would not do so for the other schemes. I give way to the noble Earl.

Earl Russell: My Lords, I thank the noble Baroness for that information, which I knew. Can she answer the specific question? Does she think that people can live on the reduced benefit?

Baroness Hollis of Heigham: My Lords, that is one way of putting the question. The other way is to ask whether it is reasonable to expect young people not to take advantage of a full-time job at decent pay, or an education opportunity, or a voluntary placement or a placement in an environmental taskforce. I share the view that if those options are available, every young person I know, like my son's friends, would be delighted to have opportunities that are currently not even faintly available to them. In that sense, apart from the aberrant and unusual case, we do not believe that there will be any problem of sanctions being invoked. Youngsters will have opportunities that young people in this country have not had for the past 20 years under this Government.

We wish the Government's scheme well, but at the end of the day such a scheme is necessary precisely because of the failure of the Government's economic policy.

4.27 p.m.

Lord Mackay of Ardbrecknish: My Lords, I knew that this would be an interesting and stimulating debate. Although we have had only a limited number of

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players--almost the usual ones when it comes to this kind of issue--that has not in any way diminished the interest in the debate. I am delighted to hear that the principle of piloting has been welcomed. The noble Earl tried to claim authorship of the idea and, after all, imitation is the sincerest form of flattery, I believe.

I would have liked to continue in this gentle mode for the rest of my speech, but I cannot resist saying that the imitation in the last part of the noble Baroness's speech is definitely the sincerest form of flattery. Clearly, she listened to my argument that young people should not have the option of being in the dependency culture. I put that argument to your Lordships little more than an hour ago, during Question Time. I am glad to recruit the noble Baroness to the ranks of those of us who believe that youngsters should not have an option. As I said this afternoon, they should continue in full-time education, have a job, go on one of the training places or the other places available. They should not have the option of deciding not to do any of those.

Baroness Hollis of Heigham: My Lords, are we therefore recruiting the Minister in support of the other options in our policy which mark the water between us: for instance, the voluntary sector option that he was vigorous in defeating when we discussed it in this House just a few months ago; the 16-hours rule inhibiting education and training for young people that he was vigorous in defeating in this House three months ago; or the environmental taskforce option that he was vigorous in defeating in this House just a few months ago? Can we welcome him as a willing recruit to those alternative options?

Lord Mackay of Ardbrecknish: My Lords, the noble Baroness ought not to try to push her luck too far. Certainly, I am more than delighted that she has come over to my side on so many issues. I am very pleased to hear it, see it and read it. Indeed I did so with some amazement given the number of verbal lashings that I received from her lips during the passage of the JSA Bill when we discussed these subjects and the fact that some people could be disentitled to benefit. I am glad at least to hear that the noble Earl is consistent in his arguments. But then I am told that the party opposite is now thinking the unthinkable for the third time since the last election on the subject of social security.

I promised myself that I should try not to be controversial this afternoon. However, the noble Baroness tempted me too much--

Lord Graham of Edmonton: You are a failure!

Lord Mackay of Ardbrecknish: My response to the sedentary interruption is that temptation such as that could not possibly be resisted--at least, not by me.

Perhaps I may try to answer the very many questions that I was asked on the subject of the earnings top-up scheme. The scheme is small in terms of proposed expenditure. I believe the noble Baroness's arithmetic is right: the experiment is costing £25 million a year. But were we to apply it nationwide, it would, as I said in my original speech, amount to something like £500 million a year. That is one of the reasons why we think it right to pilot

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the scheme. The noble Baroness agreed with me, as did the noble Earl. To go nationwide with a scheme of this cost without being sure that it will deliver the goods, so to speak, would not be a sensible use of resources.

I thank my noble friend Lord Skelmersdale for his contribution. He asked me to translate the £500 million into people. We estimate that scheme A, if introduced nationally, could help 85,000 couples and 185,000 single people; and that national scheme B could help 120,000 couples and 430,000 single people.

The noble Baroness asked me about the under-25s. We have been over this argument on a number of occasions. As I explained in my introductory remarks, by and large they have lower financial commitments; they also have lower earnings expectations as a reflection of their position in the labour market. Harking back to previous arguments on this subject, the noble Baroness also made the point about the hours rule for partners. Entitlement will be based on one person working over 16 hours, and on joint household income.

I was asked a large number of questions, and a short while ago I was trying to bring some logic to the subject. Perhaps I may start with questions about how we decided on the pilot areas. The noble Earl asked that, as did my noble friend. As I explained, we tried to select areas where the scheme would have the best chance of success. We designed it on an agreed range of objective criteria, about which we consulted.

The building blocks for the pilot locations are the travel-to-work areas. That is the statistical tool that identifies self-contained labour markets by examining the proportion of people living in an area who also work there, and vice versa. Quite clearly, it would not be a good thing to test a system in an area where a lot of travelling goes on outside it. Of course, an area where there is no travelling outside it can very rarely be found, but an attempt was made to study those areas where there was very little. We also identified areas where, as I said, we predicted the scheme would work. Relatively high unemployment and a relatively high proportion of vacancies were therefore on the shortlist of benchmarks that we used to test the areas. We published a list during consultation in July, and comments were then invited.

A number of factors were then looked at to judge the suitability. They related to the need to find areas within the group that were similar enough to be compared. We wanted to be able to make like-for-like comparisons. That is important if a valid test is to be carried out--for example, labour market types; population densities; size and types of firms in the areas. We also had to bear in mind the operational feasibility of the scheme. These are the kinds of matters that we took into account. We also selected areas that would produce results that could be extrapolated for the national scene. It is only fair to say that the research projects (to which I shall turn in a moment) will provide the answers needed to decide whether to go national. We are not committed to going national, but we shall be very much wiser at the end of the evaluation period. We are committed to testing to

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see whether the scheme works. That includes seeing whether we have extra jobs. That is the basis on which the pilot selection was carried out.

I do not consider myself an expert in the field of research, but I gather there is little research to inform us directly on matters such as earnings top-up. However, some research studies have been done, and the background they provide will be very useful indeed. The research specifications for this particular project are out to tender. They invite proposals as to how to monitor changes in wage levels and employment. We expect that that will be achieved by a series of labour force surveys in the areas and by longitudinal surveys of the claimants themselves, as well as surveys of employers in the areas. That should provide us with a wealth of information. It should also be possible through the surveys to pick up some information on increases in consumption by recipients of the scheme, which may shed light on the other issues about which the noble Lord was concerned, the "ripple effect" as he called it. If a subtraction sum is done, it will be realised that something like £2½ million will be put into these areas through the scheme. That is not an inconsiderable amount of money.

The noble Earl asked about the interface between the tax and benefit systems. This side of the Budget, I shall say very little on the general question of taxation and taxation policy; but on his specific question about the interface, those leaving unemployment are issued with a P45(U) to take to their new employer. If emergency tax codes are applied, it is not necessarily to a new worker's disadvantage. The lower take-home pay will result in higher in-work benefit assessments. Normally, the new worker will have an estimate of future earnings, and in the top-up, like family credit, a notional tax code will be applied at ordinary, not emergency, rates. I hope that that is helpful.

My noble friend asked about the essential difference between schemes A and B. He is right to say that the average payment in the higher scheme is about £2 more. But averages do not reveal the whole picture. The higher rate scheme, because of its structure, will reach twice as many people as the low rate scheme. Therefore in practice the effects will be quite easy to distinguish. We expect independent researchers to be able to do so quite easily.

The noble Earl asked about some of the work incentive schemes that I have mentioned at this Dispatch Box over almost a year and a half, during which time I have been at the department. As I mentioned, the extension of housing benefit for an extra four weeks will apply from next April. I also mentioned the faster family credit to speed up payment of benefit; the national insurance holiday; and the jobfinder's grant of £200 which is now available nationally for the two-year unemployed. There is also the £5 disregard and the back-to-work bonus which begins to come into play. All these will help. Those of us who debate these issues all agree on the importance of the bridge between being out of work and getting into work and the costs of crossing that bridge. As I explained before, we hope that some of these measures will help the individual to make that cross-over.

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The noble Baroness asked me whether the models were based on the gross wage of £2·65 an hour. I can tell her that the models were based on an examination of the full spectrum of wages and the levels were pitched in order to ensure that families with children still receive more money.

The noble Earl asked me a question about one of the rules about the responsibility for a child and who qualifies under it. Child benefit is paid to the person who is primarily responsible for the child. It can only ever be paid to one person. That is how responsibility for a child in earnings top-up and family credit provision is decided. A person in work and receiving child benefit would be able to claim family credit.

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