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Baroness Hollis of Heigham: My Lords, if I may correct the noble Lord, I did not say that we would or would not abolish it. That question did not arise in my speech. However, we shall certainly review it to overcome the difficulties that have been highlighted.

Lord Mackay of Ardbrecknish: My Lords, "review" seems to be the favourite word. I do not know whether I conclude from that that the noble Baroness says on behalf of the party opposite that it may not abolish it but keep it. Having listened to her words, I would not be drawn to that conclusion.

Earl Russell: My Lords, I should like to ask the Minister, in answering a question from the Liberal Democrat Benches not to use the expression "the party opposite".

Lord Mackay of Ardbrecknish: My Lords, I take the reprimand from the noble Earl. I believe that his party is clear on this issue, as is it on the general question of increasing taxation. It stands fairly honestly on the issue, if I may so describe it. The noble Earl clearly wishes to abolish the habitual residence test and accepts that it is an obligation on the British taxpayer to pay the £30 million that I have mentioned. I hope that I am not being unkind to the position of the noble Earl.

Earl Russell: My Lords, since the Minister has introduced the issue of cost, I should like to ask whether he has costed the charge to the British benefits system of people who refrain from using their right to go abroad and work in the EU.

Lord Mackay of Ardbrecknish: My Lords, that is a bit like the question that the noble Earl posed to the House--

Baroness Hollis of Heigham: Exactly!

Lord Mackay of Ardbrecknish: My Lords, I do not know how the noble Baroness can say that from a sedentary position when she has not heard my response. A little patience may be required. If she knows what

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I am about to say, she may intervene and tell your Lordships. I was about to remind your Lordships and the noble Earl of the question that the noble Earl posed last week on the first day of the Committee stage of this Bill. He said that it was a question that he had posed to his father who had been greatly worried by it. As the light from the sun takes seven minutes to get to the earth, how do we know that the sun has not exploded six minutes ago? The question that the noble Earl has just posed is perhaps in that category.

This is an important debate which is about the habitual residence test that applies to income support, housing benefit and council tax benefit schemes. It is concerned with the question whether people who come to this country from abroad, whether they are European Union nationals or British citizens returning from residence abroad, have an immediate right to turn up at the local benefit agency office and say, "Please, kind British taxpayer, will you give us income-related benefits?" We decided that this was a loophole in the system that ought to be closed. In my last speech to your Lordships on this subject, I gave examples of how, certainly in European terms, people were abusing the system. The ways in which it was being abused were given fairly reasonable coverage in Time Out and a Spanish newspaper. People had been advised that Britain was a pretty soft touch so far as concerned what my right honourable friend the Secretary of State, Peter Lilley, called benefit tourism.

This debate has been brought about by the report from the citizen advice bureaux on the subject. I am afraid that we cannot accept any of the recommendations of that report. I should like to explain some of the points that I believe defend our position and make the position of the CAB and that of both parties opposite indefensible, at least concerning the British taxpayer. Until the test was introduced in August 1994, nationals of other European economic area countries could come to this country to look for work and claim income support, housing benefit and council tax benefit for up to six months. At the time we estimated that some 5,000 European economic area nationals did exactly that.

There was considerable anxiety about that state of affairs. Ministerial postbags, stories in the newspapers, and articles in foreign newspapers, indicated that the position was being abused, as I have already said. Investigations revealed that Britons going to another EEA country did not have the same freedom of access to the benefits which are available there. There was, in fact, a one-way traffic which put British taxpayers at a disadvantage.

The noble Baroness, the noble Earl, and the CAB suggested that we should try to persuade our European partners that we should renegotiate the agreement that we have with them so that their systems come more into line with what ours used to be, and allow our nationals to go abroad and immediately to be able to receive income-related benefits in the countries of our European partners. The UK system is not comparable with the social assistance schemes of most of our European partners. We have a legal rights-based system founded on a national scheme. Most of our European partners

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run a much more discretionary scheme which is much more locally based. In the countries of most of our European partners, residence permits are required. It is those residence permits which exclude UK nationals from their benefits. The habitual residence test reciprocates the residence permits required in those countries. I doubt whether any progress can be made in that regard.

Most of our European friends would tell us, as they do on so many other things, that we should put our own house in order rather than ask them to make changes. In this case, we have put our own house in order. We have put ourselves much more in line with the way these matters are dealt with in the EU. I should have thought that the parties opposite might welcome that piece of European integration on social security.

We decided that we had to take action. How we took action is of course through the habitual residence test, for the reasons that I mentioned. A person is entitled to income support if he satisfies the conditions of that entitlement. Income support followed the history and methods of supplementary benefit introduced by the Labour Government back in 1966. That legal entitlement, as I said, contrasts with similar benefits in other European countries. We could not go down the same line as them without a dramatic change to the basis upon which we pay out social security to all our citizens. Our solution had to be consistent with Article 6 of the Treaty of Rome which prevents discrimination on the grounds of nationality. That is how we came to the habitual residence test. That is why it has to be a test for everyone and not just for the citizens of our fellow European countries. It is a test which has to be applied also to returning citizens of the UK. I made that point firmly last time we debated the subject: if it were not for that European dimension, we could probably find a way of preventing Europeans from coming here and keep the door open, so to speak, for any British citizen, no matter how tenuous their links with this country, to come here and receive benefit immediately. We could not design a system which did that, because that would be in breach of Article 6 of the Treaty of Rome, which is why the habitual residence test touches both.

Baroness Hollis of Heigham: My Lords, would the Minister care to confirm that at the Tory Party conference Mr. Peter Lilley did not mention that the scaffolder, the building worker, or the missionary doctor--British citizens--would be denied benefit; and that that would be the implication of the habitual residence test?

Lord Mackay of Ardbrecknish: My Lords, I shall come to the issue of British citizens affected by the test in a moment. As I recall the speech, my right honourable friend was turning his attention to the problem coming from the Continent. I know that the noble Baroness is a fully paid up member of the European Union movement--those who support being in Europe--as I do. We have to pay regard to the articles of the treaty and ensure that we obey them, and treat citizens of our fellow EU member states in the same way as we treat our own.

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As I have said previously, I accept that the noble Earl does not believe that we should have attempted to address the problem. He believes that we should not have tried to introduce the test; but we did so. That is why some British citizens are caught by the test.

Earl Russell: My Lords, if I may be permitted a clarification, I did not say we should address it at all. I said in October 1994--and I say again--that we should address it through the availability for work and seeking work rules. That seems to me to be properly attuned to the individual case in the way that this blunt instrument is not.

Lord Mackay of Ardbrecknish: My Lords, I understand the point that the noble Earl is making. I am glad to hear that he approves of the test that we are going to apply in JSA to actively seeking work, and so on. But of course those tests, where they deprive someone of benefit, do so for a short time only. It is not the same as the situation at which we are looking, where people come from abroad and expect to be given benefits for 13 weeks in the case of someone from Europe, and 26 weeks in the case of a British citizen coming from outside Europe.

The position about the tests is that in European terms many more people were, so to speak, caught by the test than we first thought. There are more people coming from the Continent to this country and claiming benefit. Of the people who come from other states of the EEA and take the test, some 50 per cent. pass and some 50 per cent. fail (some 14,000 each of the 28,000 who have taken the test). In the case of UK nationals, the figures are much more favourable regarding passing the test. Of the 105,000 who have taken the test, 91 per cent. passed; and 9,700 failed.

A great deal has been made about the people who failed. Perhaps I might say a few words about them; but let us remember that over 90 per cent. passed the test. The test, I believe, is fair. A reading of Commissioner Howell's view, which was referred to by the noble Earl, gives a reasoned view of the test and gives in a clear way the parameters that we should apply. I appreciate that the noble Earl disagrees with Commissioner Howell. He took into account the Shah case. In paragraph 22 he refers to it in particular. He refers to it elsewhere, also. He said:

    "In my judgment this factual approach to the meaning of habitual residence is not in any way inconsistent with anything said by Lord Scarman in Shah's case".

I believe that Commissioner Howell did take into account Shah's case. The test of course does not discriminate on grounds of nationality. It enables British citizens who have established habitual residence in this country to have short absences abroad without terminating their habitual residence and losing benefit. Commissioner Howell's judgment makes clear the parameters that adjudicators should take into account.

Some anecdotal evidence of cases has been given. We could swap cases across the Floor of the House; but I shall take the first lady quoted by the noble Earl. I do not want to get into the detail of people's circumstances, because, as your Lordships know, one of the difficulties that Ministers in the Department of Social Security have

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is that they have an obligation of confidence to those people who make application. It is pretty common knowledge, and is reported, that the person to whom the noble Earl referred lived in Belgium for 10 years. I believe that it is reasonable to suggest that her home was, and she intended her home to be, in Belgium. She was not, by any common person's definition of the words, habitually resident in the UK.

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