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Baroness Hollis of Heigham: Perhaps my noble friend will allow me to intervene. It is right that reference was made to about 50 cases of suspected fraud. I am happy to confirm that, to the best of my knowledge, not one single case of fraud was confirmed. But I am sure that my noble friend will accept that when I made that statement I tried to set it in the context that the benefit integrity project revealed a very high level of error--of the order of 15 per cent--in the accuracy of entitlement to DLA. That was understandable because people got better and continued to draw their benefits without necessarily understanding that a change in circumstances triggered a change in benefit. I was very careful to emphasise that it was not about fraud. But that is not to say that there has not been, and there is not, a high level of error.

Lord Morris of Manchester: I am grateful to my noble friend. She will also recall that what BIP demonstrated was that there was a vast amount of under-claiming of their entitlements by disabled people. I shall document that as I proceed.

After my noble friend's disclosure, many thousands more disabled people were investigated in DSS swoops on their homes, bringing some to the brink of suicide, but not a single case of proven fraud was found. Yet the bogus figure of £4 billion in benefit fraud is still quoted as one of irrefutable truth. As recently as 19th May, in

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an article prompted by strong resistance by Labour MPs to the Government's proposals to cut spending on IB, one distinguished journalist went further:

    "Benefit fraud",

he said,

    "still runs at £4 billion a year. Benefit abuse must be many times that sum".

As with fraud, however, so with abuse, the truth will out. Again, it came from my noble friend Lady Hollis. In a recent debate she revealed that there was,

    "an under-claim of £5-£6 billion by disabled people",

of disability living allowance and attendance allowance alone. With her customary candour and decency, and notwithstanding the effect on her department's budget, she also said that she personally,

    "would be cheering if that happened",

all of which shows that the real story is not that disabled people abuse the system, but that the system abuses them for they miss out on £5-£6 billion in help that Parliament intended them to have. Without it many of them are left doubly disabled and in double despair.

It is also disturbing that a reason often given by disabled people for not claiming their entitlements is fear of being branded as what some commentators call "something for nothing merchants". The same reason is given by frail elderly people, more especially single women living alone, for not claiming income support. For not only disabled people under-claim: over £2 billion a year in income support goes unclaimed by the most vulnerable of elderly people.

Higher take-up means higher spending, but it is for help that Parliament has approved for vulnerable people, and failure to deliver it frustrates the will of Parliament. Clause 58 does nothing to remedy under-claiming; indeed, it makes life harder for disabled people who, in saving and striving to help themselves out of poverty, deserve our admiration. I hope very much that this clause will be removed from the Bill.

Lord Rix: The decision to means test incapacity benefit against pension payments is one which I, like other noble Lords, have difficulty in accepting. This measure will directly penalise people who save sensibly for their future. Many people took government advice and have been paying into personal pension schemes. They feel deeply betrayed to discover that they are being penalised for doing this. The proposal undermines government efforts to persuade people of the need to make their own financial provision for retirement. I am also concerned because the principle behind the amendment may set a dangerous precedent that signals the end of universal entitlement to the basic state pension.

If governments were to take incapacity benefit from people who have saved to give themselves peace of mind for the future, what is to stop the Government doing the same for those who save for their retirement?

There are also problems with the way in which this aspect of the Bill is set to be implemented. A threshold of £50 means that someone in their late forties who has to stop work would start to lose incapacity benefit when

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his income reaches just over £5,500. He loses all benefits once his income reaches £9,300 per annum. That hits people with very modest incomes. It is a myth that the means test will impact only on the wealthy.

I urge the Minister to think carefully about negotiating the threshold and the corresponding taper so that the system is more equitable for sick and disabled people.

Lord Goodhart: From these Benches, I strongly support everything said by each of the previous speakers in this debate. I add two brief points.

First, this clause creates a form of partial means testing. It is only partial because it goes only against one form of income--pension income. If one is lucky enough to have a substantial investment income, one is entitled to claim incapacity benefit and none of it is set off against one's investment income. That seems to be wholly inequitable. Indeed, the particular kind of income which is targeted here seems the one which is most actively to be encouraged: pension income. It would be more honest of the Government simply to say that incapacity benefit is to be abolished; and maintenance is to be claimed only by way of income support. I do not suggest that; far from it. But I think that this is a particularly unattractive form of means testing, and more so than the conventional means testing.

Secondly, this proposal will not only hit those who become incapacitated. It will hit many other people as well. It will do so because many who have mortgages to pay off now insure themselves against becoming incapacitated in order to ensure that they will be in a position to maintain their mortgage payments if they are unable to work through illness or injury.

The effect of these proposals is that those payments will be among the payments which lead to a reduction in the right to income support. The Minister looks a little doubtful about that. Perhaps I may refer her to that provision. The Bill states:

    "In this section 'pension payment' means a payment of any specified description, being a payment made under an insurance policy providing benefits in connection with physical or mental illness, disability, infirmity or defect".

Quite clearly that would cover the mortgage protection policy that I describe. In those circumstances, individuals who now have that kind of policy will be well advised to increase their policy premiums because of the loss of incapacity benefit which they will face if they become incapacitated.

For those reasons, as well as for the reasons so clearly and strongly put forward by the previous speakers, we, too, most strongly object to the clause. In due course, we hope to be able to support a vote that the clause should be removed from the Bill.

Baroness Hollis of Heigham: The Government are well aware of the concerns that have been raised about the proposals in Clause 58 under which some account will be taken of the income from occupational and personal pensions when future claims are made for IB.

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In order to clear up any possible misunderstanding, I should stress that, as with the change to the contribution conditions, people who are already on IB will not be affected. They will continue to receive IB in full, as well as their pensions, for the duration of the current claim and any future claim which links to it.

However, for new claimants there will, under Clause 58, be a reduction in the amount of IB payable where the income from an occupational or personal pension exceeds a certain amount. The Government have proposed a reduction equivalent to 50 per cent of the pension income over £50. But the exact sums will be set out in regulations and the Secretary of State has always made it clear that he will review the level of the disregard before the introduction of the measure to ensure that it is fair and reasonable. I repeat that these figures are not set in stone. The Secretary of State made that clear at the Report and Third Reading stages in another place. In addition, the Secretary of State will be reflecting on the points made tonight.

What is at issue today is the principle of reducing IB, not the precise level of the reduction. I know that the principle troubles my noble friend Lord Ashley and many of your Lordships. IB is a contributory benefit and in the main the practice has been that it is paid in full regardless of other income. I say "in the main" because, contrary to some assertions made tonight, there have always been some income tests and earnings rules in the contributory system. For example, entitlement to adult dependency increases and child dependant increases in IB and retirement pension is subject to a test of the partner's earning and occupational and personal pensions. Equally, contribution-based JSA takes account of the full amount of occupational and personal pensions above £50 a week. Equally, in IB there are rules on therapeutic earnings, counsellors' allowances and so forth. So there have always existed some income tests and earnings rules within the contributory system. Furthermore, contributory benefits for unemployment have been abated for pension income for many years and at a taper of 100 per cent as a result of the policy of the previous administration.

What, then, is the principle behind the Government's proposal? The principle is the need to ensure that the IB rules reflect modern conditions and establish a fairer partnership between different types of support for people who are unable to work.

The post-war Labour government created a structure of benefits for working people below pension age which was intended to provide an alternative income if earnings were interrupted by sickness or unemployment. At that time it could generally be assumed that if people were not working they had no income. The benefits were therefore clearly designed to meet financial need--to defeat Beveridge's giant of want.

The essential purpose of IB and JSA remains the same today, but the circumstances have changed very significantly, both because of the very large increase in the coverage of occupational and personal pension provision and because of the increased prevalence of early retirement. Today, 86 per cent of men in full-time work are members of either an occupational or personal

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pension scheme, as are 77 per cent of women in full-time work. This compares with just over a quarter of men in 1953. Another significant change is that today far more people take early retirement. These changes are recognised in JSA, but not in IB.

As a result, IB is increasingly providing a top-up for pension income. That is indisputable. Over 600,000 current IB recipients--around one third--have income from an occupational or personal pension as well as their IB. Nearly 400,000 have pension income of £50 a week or more averaging £120 a week. Nearly 100,000 have pension income worth £150 a week or more, averaging £230 a week. Those amounts are substantial. I should be happy to go into greater detail about the breakdown of the holdings of occupational pensions alongside IB, but full details were given in an answer to Dr Roger Berry on Thursday, 17th June 1999 in the other place, where your Lordships can check the figures.

12.15 a.m.

Lord Higgins: What is the overall saving to the Exchequer?

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