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10 Oct 2011 : Column GC403

Grand Committee

Monday, 10 October 2011.

Arrangement of Business

Announcement

3.30 pm

The Deputy Chairman of Committees (Baroness McIntosh of Hudnall): Good afternoon, my Lords. I begin by reminding the Committee that if there is a Division in the Chamber while the Committee is in session, the Committee will adjourn at the sound of the Division Bell and resume 10 minutes thereafter. May I also remind Members of the Committee of the new procedure during Grand Committee on the Bill for Divisions in the Chamber? Members who have registered with the Clerk of the Parliaments may vote in their places in the Grand Committee provided they are present in the Grand Committee when the question is put in the Chamber after three minutes. Members who have not registered or who are not here at the three-minute mark will not be able to vote in their places. I hope that is clear.

It has been brought to my attention that some Members of the Committee are occasionally having some difficulty in hearing other Members when they speak, so may I recommend to speakers that they speak up? There is no need to push any buttons on the microphone stands; the microphones are automatically on and you need do nothing but speak into them.

3.31 pm

Welfare Reform Bill

Bill Main Page

Committee (3rd Day)

Clause 5: Financial Conditions

Amendment 22A

Moved by Baroness Drake

22A: Clause 5, page 3, line 7, after "it" insert "excluding amounts arising from the sale of a primary residence and held in a deposit or other prescribed account for a period of no greater than 12 months"

Baroness Drake: My Lords, in moving Amendment 22A I will also speak to Amendments 22E and 52A. Amendment 52A is a probing amendment to establish clarity on the treatment of capital-that is, the types of capital disregarded and for how long for the purposes of entitlement to universal credit. In Schedule 1 to the Bill, line 9 on page 107 refers to universal credit supplementary regulations, which may,

However, the schedule does not refer to such regards for limited time periods. We have received an initial illustrative set of regulations on the treatment of capital and it is clearly not a final version. I obviously recognise

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that this is work in progress. None the less, the Bill is before us and it is important to understand the Government's intention.

Currently, there is a long list of items of capital that are exempted from the calculation of entitlement to means-tested benefits. In many instances, the exemptions are time limited. These range from the value of one's home and personal possessions to tax rebates and training programme payments. It is not clear whether all these exemptions will continue under universal credit, a point that I noticed at the weekend was registered by the Institute for Fiscal Studies, although I recognise that the draft regulations have started to set these out. It is clear from the briefings we have received from the DWP team that there are gaps and further work to be done. For example, there is an acknowledgement that the treatment of capital where it is jointly held with another person who is not included in the claim still has to be addressed by the Government and a view taken.

This is a particularly important issue, because as a result of the proposed treatment of capital, some of those in work might consequently experience a reduction in their income. This is going to be of some significance for those in work because tax credits do not set a capital cut-off, although there is provision for income that is derived from that capital to be taken into account. Capital above £6,000 will be taken into account in universal credit. Furthermore, with the integration of the in-work and out-of-work benefit, the Government will be applying a tariff approach whereby capital is deemed to produce an income by applying certain rates.

On that basis, will the Minister say whether the current circumstances in which a person is treated as not having capital, including time-limited circumstances, will all continue under universal credit? I have a long list before me, having tried to do my homework, and I can see that there are several not covered in the illustrative list, including: certain payments made to disabled people; the refund of council tax liability; payment by social services; employment and training programme payments; and tax rebates, for future interest in most kinds of property. There are clearly some gaps, which I have already identified. Will the Minister also say when it is anticipated that the definitive regulations on the treatment of capital in universal credit will be available?

Amendments 22A and 22E address the desire to exclude amounts arising from the sale of primary residence from the claimant's capital for the purposes of entitlement to universal credit for a period of 12 months. Under current rules, money received from selling a primary residence or from surrendering tenancy rights to a landlord is ignored as capital for a period of up to 22 weeks from the date of the sale. I recognise that the briefings we have received have advised us of the Government's intention to continue this practice, but, in the absence of absolute clarity on the definitive set of rules, it is necessary to table amendments. Equally, however, I seek to extend those rules to allow the capital to be ignored for 12 months.

Under the current rules, capital held on the sale of a primary residence is disregarded for a period of 26 weeks. Clearly, however, already under the existing

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rules there is discretion to extend that. I am saying that rather than have discretion between 26 weeks and 12 months, a disregard for a period of 12 months should be allowed because selling a house is not easy, particularly in current circumstances. A geographic relocation may be involved, vendor behaviour may be difficult and surveyor problems may occur, and 26 weeks strikes me as a very small period for someone to manage the difficulties of selling and purchasing a new house. Hence, this clause seeks to extend the ability to disregard the capital from the sale of primary residence to a period of 12 months.

Lord McKenzie of Luton: My Lords, I speak in support of my noble friend's amendment and to catch up on one or two points. We understand the need to merge two different systems of dealing with capital: the tax credit rules and the tariff rules in the benefit system at the moment. One question to the Minister is: why did the Government opt to do it that way round rather than the reverse way round? It could lead to complexities. Someone whose income swings around that £16,000 cut-off point could be in benefit or in the universal credit one day and out the next.

My second question is: can the Minister say something about the practicalities of how this is going to work? What is going to be the process for reporting capital, and how often will that have to be updated? Will it be on a six-monthly basis? Will there be a look back if the capital has changed during an assessment period, giving rise to adjustments to universal credits? I am picking away at some of the complexities around this, because we often promulgate universal credit on the basis that it is a simplified system, and we accept that in some respects it is. However, it still has attached to it these sorts of complexities from the changes in people's lives. It would be good to know which of the existing exemptions will be carried forward into the new system.

The £16,000 cut-off point will penalise savers, making it harder for low-income working families to save. It will particularly penalise families with high tax credit awards such as high childcare costs or indeed disabled children. Therefore, we see this as a disincentive to save. I was going to ask whether this is wise when there are rumours about auto-enrolment being deferred, but I am advised that that is not now in the Government's mind.

I was a little surprised in the briefings that we had from the department by comments about it being right that people should, over a period in some circumstances, disinvest their assets before wholly relying upon state support. However, the briefing note quotes in aid,

That has a resonance for many people, particularly on the left, and it is why, for a period, reference to means-tested benefits was a derogatory and hated term because it took you back to circumstances in which people knocked on the door, entered the front room and told you to sell every stick of furniture you had before you could rely on benefits. Reverting to references to national assistance and those practices is probably not going to be the most helpful way for the Government to sell this policy.



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I support my noble friend on the one-year rule in relation to disposals of properties because the current market is extremely difficult, and even if individuals have the cash to make the purchase, people get caught up in chains and it is difficult for them to complete and sell on so that a satisfactory result can ensue. It is therefore very reasonable to request simply extending that period and that disposals from the sale of property are excluded from the calculation.

Baroness Turner of Camden: My Lords, I, too, support these amendments. I understand that this is a rather difficult question, but one can hardly pick up a magazine directed at older people without encountering articles urging people to save so that when they are older enough money will be available for them to be provided with social care. We do not yet know what the Government intend to do with the report that we have had on social care, but it could very well involve people having to have a lump sum available at a particular time. Quite obviously, it is in everybody's interests to ensure that people have cover for when they are ill and require social care, particularly as the report includes a general recommendation that people are best off being looked after in their own home. You have to take account of these sorts of possibilities when assessing what is a reasonable amount of money to be regarded as suitable to be retained by the individual concerned when assessing the requirement for benefit.

3.45 pm

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, this is one of three amendments about capital. I shall start by explaining our intentions for the capital rules and universal credit. I will then be able to be briefer on that context and background when we come to the next two groups. The rules for the current income-rated benefits will be carried forward into universal credit. We intend to limit eligibility for universal credit to claimants who have less than £16,000 of capital. Claimants may save up to £6,000 before there is any impact whatever on their entitlement to universal credit. If they have between £6,000 and £16,000, we would assume a tariff income from this capital. These rules ensure that support is focused on those who really need it rather than on people who have significant resources on which they can draw. This is an important principle, which is essential to ensure that the system remains affordable. As noble Lords have pointed out, there is a slightly opaque area here in the sense that capital can be deferred income and vice versa. It is important to have some rules around the appropriate capital.

In order to be fair to the taxpayer, we have assessed how much families typically save. While nearly one in three pensioner households have savings in excess of £16,000, only 13 per cent of households with a working age adult in them have this much savings. A typical working age household has only £300 in savings. On the point about importing the tax credit system to universal credit, the noble Lord, Lord McKenzie, asked why it is this way around. The answer is simply that it would be unaffordable.



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The first group of amendments seek to amend the financial conditions for universal credit by requiring capital derived from the sale of the claimant's primary home to be excluded from the calculation of capital for up to 12 months when held in a deposit or a prescribed account. However, it is already our intention to provide claimants who have capital from the recent sale of their main home with a significant level of protection. This is clear from the illustrative draft regulations on capital and income recently shared with Peers. The illustrative schedule on capital to be disregarded sets out our intentions on this point.

Capital from the sale of the claimant's main home received within the previous 26 weeks will be disregarded, which is to be used for the purchase of their new home. That period may be extended where the decision-maker determines that it will be reasonable to do so in the circumstances of the case. An example would be where accommodation suitable for a disabled member of the family has not yet been found. We believe that this approach balances our duty to be fair to the claimant with the need to safeguard universal credit.

Turning to the power in Schedule 1 to treat a claimant as having or not having capital, this is simply taken in order to replicate the notional capital rules that existed in the current benefits system and that guard against claimants deliberately depriving themselves of capital. The exemptions for types of capital covered by the rules in the existing benefits system will be maintained. Some types of payments cited by the noble Baroness, Lady Drake, are classed as income. It is not necessary to add a specific power taken by Amendment 52A. As I have said, the illustrative draft regulations demonstrate that we already have the power to limit the time period for which claimants are treated as having or not having capital where we choose to do so. I hope that this account has clarified the Government's proposals for protecting the capital of claimants who have recently sold their main home and therefore explains why we could not support Amendments 22A, 22E and 52A.

Lord McKenzie of Luton: Perhaps the noble Lord can help me a little on some of the practicalities of that. We are saying that the existing exemption operates when someone has disposed of their main residence and reapplies it within a 26-week period. Is it a requirement that it is wholly reapplied for the purchase of a property? My noble friend Lady Turner made a point about someone who wanted to save some of that because they were downsizing for carers. Is this looked at retrospectively? Will someone look after the event and see as a matter of fact that it was so applied and, if it was not, what the ramifications are for the application of the universal credit?

Lord Freud: Yes, my Lords. The way it works is that the amount of money that is being reserved for the purchase of a new house is the amount of capital that would be exempted. Other capital would not be exempted. We are currently working on the exact workings of the system and getting these regulations-the next iteration-right. Therefore, I am not currently in a position to lay down clearly, as the noble Lord rightly says, the practical applications and fine tuning of how we apply this. That will come at the appropriate time.



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Baroness Hollis of Heigham: My Lords, I wonder whether the noble Lord can help me with some stats. It was interesting that in his reply he told us that the current percentage of people who have savings above £16,000 is 13 per cent. However, when you start netting the figure and taking into account the notional income derived from that tariff, and given that something like 85 per cent of people on JSA expect to get back to work within nine months to a year, what does he think the real savings, or loss of savings, would be were he in a broader sense to accept that, with the integration of the two benefits, one should go for the tax credit system rather than the JSA system? Can he help us on that? In the light of that, we can perhaps press him further, but what real savings is he expecting to generate, given that most people who come on to JSA will be back in work within the year? In their first six months their benefit is contributory, so they are not affected and they will go back to work very quickly within the next six months. Therefore, if they have those savings and you say that because they are over £16,000 they will get not a penny of JSA, in real terms what net savings do you expect to garner? I would like to press the Minister on a further point, if I may.

Lord Freud: My Lords, I have to confess to the noble Baroness that I do not have my hands on that particular figure. I am not sure that I can find it out. We have other figures around the costs, but I am not convinced that I have that particular figure readily to hand. Can I leave it that I will try to find it out and supply it in the fullness of time?

Baroness Hollis of Heigham: My Lords, I do not want "the fullness of time"; I want very soon, just as with childcare-the day after, if the Minister would be so kind. This is the key figure. The key stat is the real net cost of going for the more generous alignment with tax credits rather than bringing people down to the harsher alignment with JSA. That is the pivotal figure. I am surprised that this has not been brought into play in the Minister's response. People coming out of work on to JSA are desperate to get back into work. Anything we do to make it difficult for them to get back into work is counterproductive. Anything that runs down their savings and that they are worried about, or anything that risks them when they go from work to benefit as opposed to from benefit to work is surely to be deplored. I suggest to the Minister that this is very unwise social policy.

Lord Freud: My Lords, I withdraw my previous reluctance to provide a figure. In much less time than I thought, I am now in a position to let noble Lords know that if we removed the cap limit entirely, the cost would be £500 million per annum.

Baroness Hollis of Heigham: Forgive me, but that is the net cost. If you removed the cap entirely and instead took into account notional income from those savings, given the stat of 13 per cent being over £16,000, as the noble Lord said, as well as people being in a range of between £6,000 and £16,000, and taking into account that they will have their benefit cut by virtue of their notional income, I take it that the £500 million includes that figure. It seems unlikely on the face of it, but it may well be the case. I suspect that it is a gross

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figure, not a net figure. I could be wrong, but we need to know the cost in effect of substituting one system over the other, not simply the cost of not having any savings rules at all.

Lord Freud: My Lords, I can clarify. That is a gross figure. Behavioural changes, clearly-

Baroness Hollis of Heigham: No, they are not behavioural.

The Deputy Chairman of Committees: My Lords, I hesitate to interrupt but noble Lords will see that there is a Division in the Chamber, so the Committee will adjourn now and resume in 10 minutes.

3.53 pm

Sitting suspended for a Division in the House.

4.05 pm

Lord Freud: My Lords, I will complete my response to the questions. If we were to take a £50,000 limit with the tariff rules-in other words, starting at £6,000 and moving up on the tariff rules from £1 for every £250-the cost would be £90 million; so if we were to take the cap off completely, it would be a little, but probably not a lot, more. The £16,000 cap that we propose will affect 200,000 people in total. However, currently only 100,000 are on tax credits. That is the universe that we are talking about. I point out the political choices that we are making. We are designing universal credit to be for the poorest people and putting constraints higher up the income scale. That is entirely deliberate.

Baroness Hollis of Heigham: I am grateful to the Minister for giving us the figures. Perhaps he could make it clear that embedded in them is the scatter of JSA claimants who will return to work at different intervals. The first six months will be contributory. Thereafter, most of those coming on to JSA for the first time in that year will be back to work within three months or so on average after their contributory benefit has ended. Has the distributional factor of how long people stay on JSA been taken into account? I am talking not about existing JSA claimants but new claimants. What will the implications be?

Lord Freud: Yes, my Lords, a careful assessment has been done of how it will work in practice, which incorporates those kinds of effects.

The Earl of Listowel: My Lords, I hope that the Minister will forgive me if I ask his help on a point of detail. It may come up during fine-tuning, but it might be helpful to flag it up now. I refer to young people who leave the local authority care system and win an award against their authority because in their time in care they were not properly cared for. Therefore, they have a capital sum that they might need to use for education, therapy or something else. What circumstance will they find themselves in under these arrangements?



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Lord Freud: My Lords, I will have to write to the noble Earl, Lord Listowel, with precise information on that.

Baroness Drake: My Lords, on the point about people who sell their houses and have capital from that, current rules allow the discretion to extend to 12 months. The provision is already there, so I do not see why one could not have efficiencies in the system since the cost of applying discretion is reduced to the difference between six and 12 months and people are given greater clarity in what is a complicated market for buying and selling houses. Also, the rules are being applied to a population that would not previously have been subjected to them. Millions of people will be impacted over time, and this is not a difficult alteration to make in the rules.

On the definitive set of rules setting out what capital or earned and unearned income is or is not going to be taken into account, the exchange with my noble friends has indicated why people are concerned to see and understand the list as soon as possible-again, particularly the application of those rules to the in-work population. For the moment, however, I beg leave to withdraw the amendment.

Amendment 22A withdrawn.

Amendment 22B

Moved by Baroness Drake

22B: Clause 5, page 3, line 7, after "it" insert "excluding amounts in an Individual Savings Account or other prescribed saving account up to a prescribed maximum of no less than £50,000, where the claimant is in work or was in work in the last 12 months"

Baroness Drake: My Lords, in moving Amendment 22B, I shall also speak to Amendment 22F, which seeks to exclude amounts in individual savings accounts or other prescribed savings accounts as identified by the Secretary of State up to a value of £50,000 from the capital of claimants for the purposes of entitlement to universal credit for those in work or those who have been in work within the past 12 months. The issue of the application of the capital rules to those either in work or trying to get back into work causes me great concern. A Government in today's world have to have a set of compatible policies that seek simultaneously to achieve a series of outcomes: a welfare system that is fair and incentivises work, a desirable level and distribution of savings that sustains personal responsibility, and effective support for ordinary hard-working people in order to manage their experience of today's flexible labour market. I fear that the manner in which the tax credit system is to be integrated into universal credit will create inconsistencies in the delivery of those desirable outcomes. The application of the tariffed income and capital limit rules under universal credit that do not currently apply under tax credit to those in work is an important instance that will give rise to inconsistencies.

Universal credit is changing the capital rules for those in work. There are no capital cut-offs in tax credit, although taxable income from savings and other

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assets is taken into account, subject to a disregard of £300 a year. Under universal credit, as the Minister has said, there will be a £16,000 capital cut-off with a harsher regime of an assumed tariffed income on savings above £6,000. I acknowledge that under the current rules, capital limits of £6,000 to £16,000 apply to jobseeker's allowance, and a tariffed income is assumed for capital within those limits, but the Government have chosen to opt for a harsher anti-savings regime and to apply it to everyone, including those in work. It really is quite a harsh anti-savings regime. The simple mantra of, "If you are in work and you have savings, you should not look to the taxpayer for support", which is the explanation given in the departmental briefing notes, ignores the complexities of what is being managed here.

It is important to have a benefits system that works for the poor, but the tax credit system was also set up to enable people in work to better themselves and to improve their position. If work, responsibility, control and aspiration are to be encouraged, those in work should find it possible to save and to build up a reasonable level of financial assets. They should not be in the position where, if they have been responsible, that support is suddenly taken away from them. This penalises those who save and undermines responsible behaviour. Families on modest incomes with modest savings will be hit by the proposed new rules, but not only families with higher levels of savings will be hit; those with savings above £6,000 will be impacted by tariff rules that assume 21 per cent rates of return- 21 per cent times the typical rate of return in an ordinary savings account.

4.15 pm

As the Minister said, in the briefing it is estimated that, in steady state, there will be 200,000 to 300,000 households with savings of between £6,000 and £16,000, and in 2014 a tax credit population of 100,000 households with capital over £16,000. However, the people in those populations will change from time to time, so the total community that will experience the impact of these capital rules will be significant over time. I can see from the briefing that some transitional protection is intended for those on tax credits, but it is clear that a moderate change in working circumstances could trigger the sudden loss of the disregard of their savings, with a consequent loss of income, so sending out a very clear and quite shocking message that it does not pay or has not paid to save.

The Minister, through the design of the universal credit system, wants to de-risk the move from benefit into work, and I give him full recognition for that, but should he not also de-risk the inevitable move from work into benefit, allowing responsible hard-working people to spring back, stay resilient and deal more easily with difficult labour markets? In today's labour market, what constitutes an insecure job has a much broader definition than has historically been the case. Do we not want people operating in a flexible labour market to save to smooth their circumstances, especially if they have children or commitments that they cannot duck? However, under the capital rules of universal credit, why should they bother? They will be penalised if they do.



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If I could press the point, surely it is desirable to reduce the risk that people face when they move from work to benefits. The capital changes for people in work now actually increase that risk, and there is no incentive to save in order to manage yourself through that risk. That is the danger that the Centre for Social Justice so powerfully spelled out in its report, Dynamic Benefits, on page 121, and in its executive summary on page 8, and in evidence to the Commons committee on 22 March this year. It was an interesting exchange. Stephen Timms commented to the gentleman from the Centre for Social Justice who was giving evidence that in its report,

Mr Ghelani, on behalf of the Centre for Social Justice, replied:

"It is fundamentally a disincentive to save. I think that the savings limit for people who are not working and are on benefits has been £16,000 for I am not sure how many years, but certainly rather a lot. The limit has not been uprated for at least a decade I would say, and possibly a lot longer. By extending that to people who are working, people who get close to that threshold might suddenly realise that it does not pay to save and that there are perhaps other things that they should be doing with the money, whereas saving is in itself a protection against dependency".-[Official Report, Commons, Welfare Reform Bill Committee, 22/3/11; col.18.]

The Centre for Social Justice makes the point with a fluency that I would struggle to replicate.

In other arenas, discussions are taking place about incentives to raising saving levels by ordinary people: ISAs as feeders to pension saving; and other measures designed to promote asset accumulation and responsible behaviour, particularly for those on low to moderate incomes. However, the application of these proposed capital limits to in-work benefits will just close down those discussions because they will simply undermine any future initiatives. It is therefore a kiss of death to asset accumulation strategies for low to moderate-income earners at certain income levels.

This amendment seeks to have ISA savings up to a maximum of £50,000 disregarded for the purposes of the universal credit for those in work and those in work in the past 12 months. ISA is a tax-incentivised product the cash element of which was targeted particularly at ordinary people. The £50,000 allows for those, including joint claimants, who have been responsible over a very long time and who may be older than some other younger claimants, because persistency of saving over a lifetime is an important part of taking responsibility. However, once that ISA saving is drawn down, that tax-advantaged element is lost for ever, because under the ISA rules there is no way of restoring that saving that had to be drawn down and of reclaiming the accrued tax advantage. It is gone, and you are disadvantaged in that sense.

It strikes me as rather unfortunate that well-off people and non-working members of their families and spouses can continue to enjoy the accruing benefits of various forms of tax-incentivised savings, often at 40 or 50 per cent tax relief, whereas hard-working, moderate or low-income families who behave responsibly can find their incomes reduced. This is unfair. We have had quotes of the order of £70 million to £90 million,

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because the noble Lord anticipated this amendment. I have to say in response that if there is a requirement to deliver £70 million to £90 million, the incentivised savings for the better off and the levels and the tax relief on those incentivised savings are a better area in which to seek to find that money than that of hard-working people who will suddenly find themselves up against a set of rules that take away their money and inhibit their ability to get back into work fairly quickly when they are trying to juggle being out of work.

Universal credit has to embrace both those who are in sustained and long-term unemployment and those hard-working people who are managing periods of difficulty or unemployment that has been imposed on them. An efficient welfare system does not suddenly remove support from such responsible people and families who are managing themselves through problems such as redundancy into another job. Again, I am supported by the Centre for Social Justice in the view that it is not desirable to be so harsh on people who have savings when those people are out of work or trying to manage not becoming dependent.

To address this problem, this amendment would allow ISA savings or such other prescribed savings products to be disregarded for a period of up to 12 months after losing a job. The fairness to the taxpayer argument has to be weighed against the danger of a design of the universal system that appears punitive for responsible working people who were saving and will actually increase dependency and undermine the incentive to save. I beg to move.

Lord McKenzie of Luton: My Lords, I have little to add to what my noble friend said about her amendment, which she moved comprehensively and quite brilliantly. Will the Minister confirm that ISA income is disregarded under existing arrangements for tax credits whereby the income, not the tariff, is looked at? If that is right, what is the read across to the new regime? Does that not reinforce my noble friend's amendment?

The Earl of Listowel: My Lords, I was most grateful to the Minister for his previous reply and for the offer of detailed information on the question I asked him. Now I would like to ask him about child trust funds, and I hope I have the right hook on which to put this question. There has been some toing and froing about child trust funds, but thanks to the work of Paul Goggins MP and support cross-party, they have been reinstated for children in local authority care. The local authority will put in a sum, supported by the Government, for each year that a child is in care, I think. I am interested to know how that will be treated in this context. The Government have also moved away from providing money to parents for trust funds, but they are looking to find vehicles to encourage parents to put money for their children into these child trust funds. Again, I am interested to know how that particular vehicle will be treated in this context. I hope that is clear.

Baroness Campbell of Surbiton: My Lords, I would like briefly to support this amendment by reminding Members of what happened when there was an assault

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on savings of disabled people who are reliant on social care. Over the past 10 years, one who is in receipt of social care support has significantly not been able to retain savings above and beyond £14,000. The consequence is that these people have not been able to develop their careers, buy a house, buy a car, save for a family and feel an equal member of society to a non-disabled member. I think we sometimes forget how the inability to save beyond £14,000 can erode one's sense of self and of equality. I therefore support this amendment; I think it is admirable, and I will continue to raise the issue in the area of social care. Andrew Dilnot raised this in his recent commission report as being one of the greatest barriers to the life chances of people who rely on benefits, especially social care benefits and support, so I am very pleased that this has been raised by the noble Baroness, Lady Drake, and I support it.

Baroness Hollis of Heigham: My Lords, I, too, support my noble friend's amendment, which was so impressively and eloquently moved. I thought she had an unarguable case, but we will see in a moment whether the Minister thinks differently. The Minister has been very responsive, rightly in my view, not only to the issue of rewarding the move into work but to the issue of reducing the risk of moving into work. One thing I must welcome about universal credit is precisely that it takes into account the risk for people on very low and narrow incomes. I do not doubt we shall come back to the very high risks that people on very low incomes face when trying to manage on a frankly very tiny budget when we discuss an amendment on payment methods tabled by my noble friend Lady Lister.

There is another risk. You are in work, you may be receiving tax credits or may be self-employed, and you try to build up savings, through ISAs or whatever, because you need to replace a white van for your business to move things or because you are a self-employed carpenter with tools because you can no longer get a job as an employee, or because you are associated with a garden centre and are taking stuff around; or you might need a car, particularly one that is big enough to take your elderly parents out from their residential care, and that will cost you substantial savings; or, as my noble friend mentioned, you might be an older person in your 40s or 50s, with children approaching university age, who has been saving hard to make it possible for them to go to university without facing a massive fear of subsequent debt.

All these are expenditures which I am sure the Minister would regard as reasonable, and all require saving-in some cases, if possible, beyond the £16,000 figure. You may have several demands. A rollercoaster of demands might hit you, and you have over the years providently built up your savings to £20,000, £25,000, or whatever, so that you can lay off that risk. I know the Minister understands the point about risk if one is going from benefit to work.

4.30 pm

There are also real risks facing people who are in work, who currently enjoy tax credits and who may now find under the regime described by my noble friend that their savings are now expected to replace

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their JSA income. As a result, they will have none of that resource that allows them to smooth the perfectly legitimate, proper and desirable expenditure they face. If they go back into work subsequently or perhaps are lifted off tax credits, they will think to themselves, "What is the point of my trying to build up ISAs in future? What is the point of my having some rainy day money? What is the point of my doing what another bit of government tells me to do, which is to save? As soon as I do, I am penalised and I am not able to meet my other responsibilities towards my family members or my efforts to keep myself afloat as a self-employed person because you have run down my savings. You have reduced my resilience to cope. You have increased my risk; you have increased my difficulty in getting back to work, because I now have a clapped-out van I cannot rely on". I know the Minister does not want that scenario; and if he does not want it, I very much hope he will agree to take back the amendments moved by my noble friend on various aspects of savings and think through them again.

The Earl of Listowel: My Lords, I am afraid my last comments were probably not very clear, for which I apologise. The question I really wanted to ask was about a young person leaving care who has a sum of capital in a child trust fund. Will that sum be exempt if he needs to draw on universal credit?

Baroness Howe of Idlicote: My Lords, having listened to the detailed arguments, which were extremely well put, if I may say so, the message to me is definitely that all this looks as though it is going to discourage people from saving. If the Minister cannot reply to what we have heard, that is a very worrying message to be sending out.

Baroness Sherlock: My Lords, I would like to add one final word. Could the Minister reflect for us briefly on one of the wider consequences of this move? When tax credits were set up, they were, as he will know, designed to replicate work in many ways and to replicate the tax system, so it is not the case that having savings is not taken into account at all. Under tax credits, genuine income from savings is taken into account, and that is the way it should be, but under this new system it is not just the very richest who are affected. Once people reach £6,000 worth of savings, they will face, as my noble friend Lady Drake described, a heavily punitive rate of effective taxation on that. I wonder what the effect of that is on the marginal deduction rates as they move into work.

I ask the noble Lord to do two things. One is to comment on how he has factored that into the effective incentives to move into work in a whole variety of situations. Secondly, could he say whether he is not worried at all that it might push people back into an approach of dependency on the state as opposed to their trying to share that responsibility between themselves and the state, which the tax credits system encourages them to do?

Lord Freud: My Lords, Amendments 22B and 22F would exclude from the calculation of capital any savings placed into an individual savings account or other prescribed accounts of a claimant who is in

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work, or who has been in work in the past 12 months, up to a maximum limit to be set no lower than £50,000. It begs a really very simple question: should the taxpayer support someone who has savings of £50,000? That is the question that is being asked here, and I think it is a question about amounts. The figures we are using were taken over from the existing benefits system, and they were raised a little over five years ago in April 2006. Those figures were doubled from £8,000 at the top to £16,000, and the starting rate from £3,000 to £6,000, so those figures do move around. I accept that determining what the right figure is here is not an exact science. Indeed, one of the things I am keen to have is a responsive system that starts to get research and understand judgments such as what the right figure is here.

I understand exactly the motivation of the two amendments, which is to encourage low-income workers to save. The argument comes down to how much we and the taxpayer can afford. I gave some figures when we debated the previous group of amendments. I will remind noble Lords that if we had an upper capital limit of £50,000, it would cost £90 million a year, which we simply do not have. Under our proposals, only when a claimant, or joint claimants, has £16,000 or more will the entitlement to universal credit cease; and only 13 per cent of households have this much in savings. That is why the figure is not as arbitrary as some noble Lords indicated.

I was asked a series of questions. I will have to add to my letter to the noble Earl, Lord Listowel, to get right the position of children leaving care. Clearly, a child's income and capital are wholly disregarded in the system. The noble Lord, Lord McKenzie, asked about the treatment of ISA interest. Universal credit will replicate the capital rules for means-tested benefits by using a tariff income. It is not possible to read across from the tax credit system. As noble Lords know, tariff income is not-and is not meant to be-the equivalent of the actual income that you might earn on that amount of capital. The figure includes an estimate of how much you should be prepared to run down your capital while you look for support from the state.

Lord McKenzie of Luton: Will the Minister confirm that tax credits and ISA income are not included but are exempt? Is that right or not?

Lord Freud: I will have to write to the noble Lord on ISA income in tax credits. I do not know the exact position. I hope that that explains why we cannot support Amendments 22B and 22F. I ask the noble Lord to withdraw his amendment.

Baroness Hollis of Heigham: My Lords, the noble Lord started off with a question that I suspect was meant to be rhetorical, but I think he is entitled to an answer. Is it right for the taxpayer to support someone who has £50,000 in savings? That was the noble Lord's opening sentence. I agree with him that that is the key question. However, given the responses that he has heard today, the answer should be, "Yes, in certain circumstances". The key question is, "What are the circumstances?". There is no absolute yes or no answer.



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The circumstances mentioned so far include whether this will help sustain savings and the savings habit. The answer is yes. Would it help people get back to work earlier than they otherwise would, and therefore depend less on benefits? Possibly, yes. Would it help families avoid falling into debt and thus lose even the tariff income that they would otherwise expect to enjoy between £6,000 and £16,000? Possibly. Should it be for a limited time so that it is not an unending commitment? Certainly. That is surely the way in which we should approach the question. It should not be, "£50K or not?", but, "What are the circumstances in which it is reasonable to support people?". Otherwise, we will make short-term savings at the expense of longer-term losses, which will come from keeping people on benefits longer than they need to be because they have gone into debt by having run down their savings. Surely that is the right question to ask rather than the bald one that does not take into account the very different situation of people who are marginal, who are in and out of the labour market but who hope to stay there with the help of savings to smooth out these movements.

Baroness Drake: The Minister opened by asking whether the taxpayer should support someone with £50,000 in savings. My initial reaction to that is that the taxpayer supports people on £500,000 because there is 40 per cent to 50 per cent tax relief up to the value of £1.8 million and £50,000 per annum for pension savings. Actually, the taxpayer supports people on much higher levels of income, and we can think of lots of other incentivised examples. There is no limit on the ability to use the advantageous tax opportunities of ISAs year on year depending on what capital is held in other places. I am not sure that that would withstand the test of rigorous intellectual analysis.

Lord Freud: I am sorry, but I cannot not respond to that because there is a difference. I think everyone in the Room will appreciate the difference between not taking someone's own money away from them and giving them money from the taxpayer, which is the comparison that the noble Baroness has just made.

Baroness Drake: I do not accept that defence because tax relief on pension savings is not taking money away from people; it is giving them their tax back.

The other point is that even on ISAs, those who are well off can take every member of their family, their spouse and children, and give them ISAs, thus taking taxpayers' money for the incentivised advantage that that brings. So the taxpayer supports all sorts of people, some of whom are more worthy than others. On that basis, if the exam question is whether the taxpayer should support someone who has £50,000, I should like to get the whole list of incentivised savings and do some comparative analysis.

The effect of this policy is that people in hard-working families will be disincentivised to save and will face greater risk in managing a labour market that the Government themselves want to deregulate further but do not want to support people in managing that deregulated labour market. As my noble friend

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Lady Sherlock has said, there is not just the issue of the £16,000. For all those low and moderate-income people who have more than £6,000-

The Deputy Chairman of Committees: I am sorry to interrupt the noble Baroness again, but a Division has been called in the Chamber. The Committee will now adjourn, and resume in 10 minutes.

4.42 pm

Sitting suspended for a Division in the House.

4.52 pm

Baroness Drake: I will just complete what I was saying. I think I made the point about those who are better off and are saving, and the impact on hard-working families who are now disincentivised to save and who will be more exposed to risk in managing difficult circumstances because they will have had to have drawn down on their savings, so will be less well positioned if they face difficulty.

The tariff rules are going to hit, very aggressively, those who have savings of between £6,000 and £16,000. A 21 per cent assumed rate of return is just extraordinary for people who are trying to save at the most modest level in that situation. Thanks to the forensic help of my noble friends Lady Hollis and Lady Sherlock, under the current rules interest from any individual savings account is currently disregarded. Under the new rules, people on in-work benefits will find that to no longer be the case. We had a lot of discussion in the debate about the impact on risk, responsibility and dependency from such a disincentive to save.

I appreciate that the Minister is arguing the Government's position, but there was no great defence of the principle that people on benefits should not be able to save without it being drawn back under the capital rules; it was much more an argument about the level of savings that would be made by this change to ISA savings. If I may say so without introducing new business, a similar argument was used by Mr Grayling in Committee in the other place. Therefore, if the primary driver is one of reducing expenditure rather than the defence of the principle, because I do not think the principle stands up-that people on benefits should not be able to save above a certain level-I argue that the taxpayer should look to other richer incentivised savers to find their £70 million or £90 million. I beg leave to withdraw the amendment.

Amendment 22B withdrawn.

Amendment 22C

Moved by Baroness Drake

22C: Clause 5, page 3, line 7, after "it" insert "excluding such prescribed amounts saved for a deposit on the purchase of accommodation for personal use, where the claimant is in work or was in work within the last 12 months"

Baroness Drake: My Lords, in moving Amendment 22C, I also wish to speak to Amendment 22D, which seeks to exclude amounts saved for a deposit on the purchase of accommodation from a single claimant's or joint claimants' entitlement to universal credit.



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These amendments are tabled as a consequence of aggressive capital rules being applied to in-work benefit, which is now the characteristic of universal credit. I have rehearsed in previous amendments the impact of integrating tax credits into universal credit and applying the proposed capital rules. We now have a situation in which an individual or a couple who are acting responsibly and trying to accumulate money for a deposit with which to purchase accommodation will find that that act of saving will be taken into account when calculating their entitlement to universal credit, so being responsible and prudent and saving for a deposit could now lead to a loss of income for some, which strikes me again as somewhat perverse. These ordinary hard-working people will face a combination of forces coming into play. Deposits for the purchase of accommodation will now need to be much higher to qualify for a mortgage. They will have to save in an environment in which private rents are rising due to increased demand and limited housing stock, and if they do try to save for a deposit this could result in a reduction in their income from universal credit. If ever I had an intergenerational empathy compared with my generation's experience, it is in this area.

We are putting barriers in front of hard-working lower and moderate-income families because of the approach to their accumulation of savings that the well-off simply will not face. If I may anticipate the noble Lord's remarks, I have no doubt that he will respond that there are no ring-fenced deposit savings accounts for house purchase and there is no way of confirming the future intentions of claimants, to which I would respond that I do not believe it is beyond the imagination of government to facilitate such products or to create a process to identify such savings. Controls could be applied to ensure that any withdrawals from those deposit savings other than for accommodation purchase could trigger their treatment as capital that is not disregarded. I am sure the noble Lord will argue that the income of those in receipt of universal credit is unlikely to support a mortgage application in today's world, but that rather dismisses the motivation of some hard-working people to save and own their own place. It sets a low aspiration for all those in receipt of universal credit, which is not justified. It ignores the possibility of change in peaceful circumstances. They may go on to lower earnings for a period in response to the labour market, but their earnings may improve over time. Nevertheless, they will have had to draw down on their deposit savings because of the capital rules. The purpose of the amendment is to say that a way should be found such that savings ring-fenced for the purchase of accommodation should not count as capital under the rules of entitlement to universal credit.

5 pm

Lord Wigley: My Lords, I support this amendment very warmly indeed, and put to the Minister circumstances that arose frequently in the area that I used to represent in the other place and that still arise in rural areas, not only in Wales but also in areas such as the Lake District and Cornwall, where it is very difficult for young people to buy a first home. Indeed, it is so difficult that unless a parent is in a position to make

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some contribution towards a deposit, it is next to impossible to buy a first home. The question that goes through my mind is: if a parent has money allocated for this purpose, is he or she going to pass it to their offspring to buy a house, knowing that if it stands in their offspring's name in a bank it may prevent that person from getting benefits?

In areas such as those to which I have referred, the major industry is often tourism, which is highly seasonal. This means that people are moving in and out of work frequently. If one takes the combination of ultra-high property values, which have often arisen because of the pressure of second homes, the relatively low income levels that obtain within the economy, and the seasonal nature of the employment available, particularly for young people looking for their first job-and one wants to encourage them to take every job opportunity there is-one surely has to make sure that the rules and regulations do not militate against them getting their foot on the first rung of the ladder in order to be the owner of their home. I put it to the Minister that somehow or other that has to be safeguarded within the system.

Baroness Sherlock: I would like to make one brief point about the sums of money that are increasingly needed to save for a house. It was reported in the Guardian on 17 September this year that the average deposit has gone up tenfold in the last 20 years, from £6,793 in 1990 to over £65,000 now. The same article went on to quote a banker from First Direct, which I presume must know these things, who said:

"The average deposit ... has actually risen more than twice as fast as house prices and almost four times as fast as income".

Could the Minister therefore think for a moment about whether the inflation in the savings limit properly takes account of the specific house-related inflation, and within that the specific deposit-related inflation, that we are seeing?

Lord Freud: My Lords, Amendments 22C and 22D would exclude from the calculation of capital prescribed amounts saved for a deposit on the purchase of accommodation for personal use where the claimant is in work or has been in work in the previous 12 months. I can of course see the benefits of encouraging low-earning families to become homeowners, but at present these amendments would be difficult if not impossible to implement efficiently in practice. As the noble Baroness, Lady Drake, pre-empted my argumentation, I will not go into this in depth, but I must say that one would need both the provision of a savings vehicle, which would in effect be exclusively for the purchase of a house, as well as adequate numbers of people wanting to save in this particular way, for that market to work. I do not think there is any necessary block on creating a vehicle like that at some stage in the future, and it would be up to a Government to look at that in the future. Right now, given our constraints, I do not think we are in a position to do it. As noble Lords have heard and as the noble Baroness suggested, these are not necessarily issues of principle; they are issues of affordability and the envelope that we have to introduce universal credit. I remind noble Lords that we have obtained an envelope of £4 billion per annum to give

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to people in receipt of universal credit. I am not netting it off against other changes, but that is what the universal credit does. Finding extra money for this, that and the other cannot be done just by a wave of the hand. It will be tough to get extra money for desirable things.

It is essential that we get the architecture of a structure that we can use to help and motivate people. If we cannot afford particular things or it would be desirable to develop particular processes, that is fine and we can do it, but right now we do not have those resources. For that core reason, I hope noble Lords will appreciate why we do not support these amendments, and I ask the noble Baroness to withdraw her amendment.

Lord McKenzie of Luton: The noble Lord may need to write to us to flesh out some detail about the £4 billion, a figure that he has used on several occasions. I accept that it is probably a gross figure and that there are some nettings off. Presumably the baseline for that is after taking account of the previous two Budgets and the spending review, and all the hits that occurred there.

Lord Freud: My Lords, I need not write to the noble Lord on this matter because I am trustful that the impact assessment that holds these figures will be on its way-

Baroness Hollis of Heigham:Very soon?

Lord Freud: I was going to say today. In fact, I can say more. I have copies in the Room. I can do better; I can ceremoniously deliver the impact assessment to the noble Lord with that figure explained.

Baroness Drake: In response to the Minister, I am able to pre-empt his arguments because the quality of the DWP briefings is so good that I can see where he is likely to be coming from. The fact that I can anticipate is an indirect compliment. On the substance of his comments, he argues that it is important to get the architecture in. The problem is that the architecture has opted for a very harsh and anti-savings regime, and for applying it to those in work. I am not sure that I would want that element of the architecture to be in, but at least some of my amendments seek to say not, "Oh, let's find bits of money", but that if one chooses to take that harsh anti-savings regime-quite clearly, as I have quoted, I am supported in that view by the CSJ-some of the consequences are so perverse that you have to address them not as bits of money but as perverse outcomes of that choice of architecture.

We have dealt with one of the outcomes, but another is that when this comes in a population of people who are currently in work, who may be in work in the future, and who have got savings, are going to find that those hard-earned savings for a deposit on a house are now going to result in an adjustment of their benefit entitlement. That strikes me as unfair and perverse. If one is looking for fairness, one needs to have intergenerational sympathy for the combination of factors that young people face in the current market,

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which I have tried to spell out one by one. This, to me, becomes an even more compelling argument for saying, "Are you going to put this on their shoulders as well?".

I accept that there may be process or product design challenges around this, but I have every faith in the creative ability of the Minister and the DWP team to find a process route through this and still urge them to allow all these people who are saving for their houses not to suddenly find that they have to draw down on their savings or lose benefit. I withdraw my amendment.

Amendment 22C withdrawn.

Amendments 22D to 22F not moved.

Clause 5 agreed.

Clause 6 : Restrictions on entitlement

Amendment 23

Moved by Lord McKenzie of Luton

23: Clause 6, page 3, line 20, leave out paragraph (a)

Lord McKenzie of Luton: My Lords, this is a straightforward and, I hope, brief probing amendment to Clause 6. This clause is concerned with restrictions on entitlement. There are three types of restrictions, two of which are time-related.

Clause 6(1)(c) deals with periods at the beginning of a period of claim, which presumably are supposed to reflect the waiting days applicable to some benefits. Of course, waiting days do not apply to housing benefit or generally to tax credits. Question one for the Minister is therefore how the waiting-day rules are to be applied under universal credit. Application to the universal credit would, as my noble friend Lady Hollis said, be adopting the lowest common denominator. You need, for example, to take account of the fact that rent has to be paid from day one if there are going to be waiting days before the claim becomes payable.

My second question is whether the same sort of exemptions from waiting days that operate currently-for example, in JSA, within 12 weeks of the cessation of another benefit claim-will apply to universal credit. Question three is what linking rules will apply so that the waiting days do not apply where universal credit is in operation previously. Perhaps we can understand the likely period involved in that. Of course, there are various back-dating rules that operate with a range of current benefits. How are these to be dealt with under universal credit?

My next question is: where waiting days are applicable under current arrangements-typically three days-are there any that are seven days, and how is this going to operate in the new world? Clause 6(1)(b) envisages entitlement being denied for up to seven days other than at the start of a period of claim. Perhaps we can have some examples of what the Minister has in mind.

It is understood that Clause 6(1)(a) may be used to exclude certain groups that remain the responsibility of the local authority: for example, prisoners and

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children leaving care. Can the Minister please confirm-or let us have a note if he is unable to do so today-that the type of exclusions contemplated for universal credit exclude access to all components of the benefits that are to be subsumed into the universal credit? I also draw the noble Lord's attention to the Delegated Powers and Regulatory Reform Committee's report on this issue, which says:

"Clause 6 provides for restrictions on entitlement that are left largely to negative regulations. The power in subsection (1)(a), which is subject to no constraint in the Bill, could affect entitlement very significantly. We draw it to the attention of the House so that the Minister may be invited to satisfy the House that the negative procedure affords adequate control over the exercise of the power. Unless the House is satisfied with the Minister's response, we recommend that the affirmative procedure should apply".

I should be grateful if the noble Lord could also deal with that point. I beg to move.

5.15 pm

Lord Freud: My Lords, I will speak to Amendments 23 and 24. Amendment 23 removes the power to make regulations for there to be no entitlement to universal credit in prescribed circumstances. Amendment 24 removes a power for regulations to be made for there to be exceptions to any limited entitlement or waiting day rules. It might be helpful if I indicate the types of circumstances in which we envisage these powers being used.

The regulation-making power in subsection 1(a) will provide that there is no entitlement to universal credit in certain cases where the usual conditions of entitlement are otherwise satisfied. As is the case now, a number of specified groups will not be able to access universal credit. These may include certain prisoners and children leaving full-time care who remain the responsibility of the local authority, where payment of universal credit would lead to duplication of provision. This may include people involved in trade disputes. Amendment 23 would prevent us being able to restrict entitlement to people in these circumstances. This would result in duplication of provision in some cases, which I am sure is not the intention.

I will address the questions of the noble Lord, Lord McKenzie, about waiting days, which constituted the main thrust of his comments. Housing benefit is dependent on entitlement to means-tested benefit, which involves waiting days-for example, jobseeker's allowance or employment and support allowance. There is also a waiting period in practice for housing benefits. In addition, where benefits such as housing benefit are paid for in complete weeks, there is no provision for short claims of a few days. In practice, when we move from the application of waiting days in the reality of the universal credit world, there will be far fewer instances of this start-up arrangement because people will go on to universal credit for their entire application and will stay on it.

The noble Lord asked about linking rules. Our intention is that people will work their way off the system-that would be a very good outcome-but would remain effectively known to the system for another two years. So that is effectively how the linking rules would work: you would come back onto your taper on an automatic basis. I have not actually thought

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this through. I imagine-I will check carefully now-that waiting days will not apply when you are on the system and it will be a kind of run-on effective link. I will double-check that waiting days will not apply in those circumstances because my understanding currently is that there is a run-on and that is the same effective claim. So the whole concern around waiting days would be very much diminished. In fact, I am reassured almost instantly that the intention is not to have waiting days as people move on and off the system in those circumstances. As to the question of when Clause 6(1)(b) would apply if not at the start of the claim, it would apply to the entire claim if it covered less than seven days.

Amendment 24 would prevent us having exceptions if we make provision for waiting days or to prevent very short periods of entitlement. We envisage that regulations under Clause 6(3) might be used in a claimant's favour: for example, where there is only a short break between periods of entitlement, a claimant may not have to serve waiting days before becoming entitled again. I am sorry that I am repeating that point. Although we have made several changes moving from negative to affirmative resolutions, on this one we propose to stay with negative ones. Given this explanation, I hope that noble Lords will not press their amendments.

Lord McKenzie of Luton: I am grateful to the Minister for that response on the issue of negative or affirmative, to which we may wish to return. In order to be clear, perhaps I may use the trade disputes issue as an example. Under current arrangements, there are certain trade disputes under which benefits can be withheld. Under the universal credit, there is an amalgam of benefits, including housing. As regards the sort of exemption that it is envisaged would apply under Clause 6, does it cover all the separate benefits that could give rise to similar exclusions now? For example, would housing being included in the universal credit still be subject to the same trade dispute rules, or will separate rules apply to that? That is not a very elegant way of phrasing the question.

Lord Freud: My Lords, our intention is to have it broadly the same. We have to work through the exact detail of the regulations but our intention is not to change the main thrust of that set of regulations.

Lord McKenzie of Luton: Specifically, if housing benefit were not currently subject to those rules, how would that be unpicked? Perhaps the answer is that it is.

Lord Freud: We would wrap them together in the universal credit but maintain the same regime for trading disputes. That would be the intention. Clearly, we have not written this regulation in detail and we will have a chance to look at it in some detail before we do.

Lord McKenzie of Luton: I am grateful again to the Minister. We should like to reflect and read the record on that issue, and it is something to which we may wish to return. In the mean time, I beg leave to withdraw the amendment.



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Amendment 23 withdrawn.

Amendment 24 not moved.

Clause 6 agreed.

Clause 7 : Basis of awards

Amendment 25

Moved by Baroness Lister of Burtersett

25: Clause 7, page 3, line 35, leave out from "payable" to end of line 36 and insert "twice per month"

Baroness Lister of Burtersett: My Lords, this is the first time I have moved an amendment, so I hope your Lordships will be gentle with me if I make any mistakes.. First, I shall make a couple of apologies. I am sorry that I was not here last week. I was one of those caught out by the change in recess dates. I apologise, too, for the length of my opening remarks, but this is an issue on which I feel strongly, as do a number of organisations, such as the Women's Budget Group and the Child Poverty Action Group, both of which I am very involved with.

The amendments are variations on a theme. The aim is not to get frequency of payment written into primary legislation, as that clearly is not appropriate, but to try to persuade the Minister to think again about the decision to make payments of universal credit monthly. In the other place, the Minister said that the Government are sufficiently open-minded to recognise the issues that monthly payments generate and that they are not ruling any option in or out.

Given that presumably this decision is being made on the balance of the argument and does not affect the fundamental architecture of universal credit, I hope that the spirit of open-mindedness will prevail today. I believe that the balance of evidence does not support monthly payments and will argue that they could undermine the universal credit architecture, the importance of which the Minister has emphasised.

The rationale for monthly payments has been set out helpfully in the second universal credit policy briefing note. There appear to be two main elements to this rationale. The first is that universal credit should mimic work and receipt of a salary so that families are able to manage their financial affairs in the manner that best reflects the demands of modern life, whether they are in or out of work, so that they will be better prepared for the reality of working life. The second is that it fits well with the overarching universal credit narrative of simplicity and preserving work incentives.

Let us consider the realities of working life. The departmental briefing note states that 75 per cent of all those in employment are paid monthly. Of course, the obverse of that is that one-quarter are not. Estimates given to me suggest that at least one in five are still paid weekly or fortnightly. According to the briefing note, as many as half those earning less than £10,000 per year are not paid monthly. I think we can safely

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assume that they are paid more frequently. So for many, the reality of working life is still weekly or fortnightly wages.

Moreover, where universal credit is paid on top of a monthly wage, it is not clear why it has to mimic it, nor why it has to do so for those who are not expected to seek paid work. At present, in-work tax credit recipients are able to choose between weekly and four-weekly payments-or perhaps it is two-weekly. Those who receive child tax credit above the family element-those on lower incomes-are more likely to receive it weekly.

Another reality of modern working life-I am very grateful to Richard Greenwood, who wrote to me after Second Reading, for drawing this to my attention-is payday loans. Mr Greenwood points out that a whole credit industry called payday loans has risen up on the back of predominantly low-income earners who get paid monthly. They find it hard to budget properly, so often obtain expensive, short-term credit on the pseudo-security of their next monthly income day. Mr Greenwood informs me that in 2010, Consumer Focus published a report that suggested that payday lending in the UK had quadrupled in the preceding four years, with an estimated 4.1 million loans being made in 2009-10. The report was called, Keeping the Plates Spinning. I fear that monthly payments will mean either many more plates being smashed to smithereens or-as Mr Greenwood warns-many more low-income families taking out expensive, short-term credit. Even worse, they could turn to loan sharks.

The point was made in a committee of the other place that similar concerns were raised when benefit payments were changed from weekly to fortnightly, but that the expressed fears did not materialise. In response, I point out that moving from fortnightly to monthly payments is a much greater leap. Also, according to Fran Bennett of the Women's Budget Group, recent findings from qualitative research with low-income families carried out by Oxford University and funded by the Economic and Social Research Council and the Department for International Development suggest that we should not be too complacent about the impact of the earlier move to fortnightly payments. One respondent, a woman with a partner and four children, said:

"Before the switch to fortnightly payments I didn't have to struggle with anything ... with all these changes I'm just struggling ... before I never struggled ... like, never".

Another respondent, a lone mother, said that,

More generally, the Women's Budget Group cites the 2008 Families and Children Study that states that one in four families with children runs out of money always, most often or more often than not before the end of the week or month. Among the lowest-income one-fifth, the figure is 37 per cent-nearly two in five.

This is not an exceptional problem affecting only a small minority of supposedly inadequate budgeters. Research evidence points to how well most people on low incomes manage their budgets. However, numerous studies also reveal the stress caused by budgeting on a low income, particularly for women, who still tend to have responsibility for day-to-day budgeting in low-income

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families and who thus act as the shock absorbers of poverty. Even if most people eventually adapt to monthly budgeting, the long-term consequences of the difficulties created in the shorter term could be immense and could undermine work incentives if people are saddled with debt. The Minister has already told us that the typical family in receipt of universal credit will have virtually no savings on which to fall back.

I am afraid that it is not good enough to make vague promises of appropriate budgeting support for those who cannot manage monthly repayments. This, we are told, might be financial advice-will the Minister please explain who will provide this advice about budgeting?-or it might be interim and bridging loans or possibly more frequent payments in exceptional circumstances. Does this panoply of special assistance, which implies that the problem lies with the claimant rather than the system, not strike noble Lords as rather sullying the narrative of simplicity that monthly payments are supposed to exemplify? Indeed, according to the Financial Times, officials have admitted that this special assistance could cost extra money but that the plans have not yet been fully worked out or costed. I ask that a fully costed plan is presented to your Lordships' House before monthly payments are finally agreed.

5.30 pm

I know that some housing providers are also worried about the possible implications of monthly payments for arrears where housing costs are paid as part of the universal credit. I return to Mr Greenwood, whom I quoted earlier. He is a responsible credit provider who is very concerned about monthly payments-even if irresponsible providers, particularly loan sharks, could, I suspect, be rubbing their hands in glee. Mr Greenwood has kindly given me permission to quote from his e-mailed letter, which makes a case against monthly payments very eloquently. He states:

"At this stage I need to tell you my own perspective ... UK Homemaker (my business) extends small amounts of credit (on basic household items like fitted carpets and washing machines etc) to low income households across Scotland and N. England. We consider ourselves (not least through self-interest) to be 'responsible lenders' and as such have developed a set of credit rules based on 'knowing our customers' and 'reasonable affordability'. To this end we go to massive ends to establish not just income levels but also frequency and dates of income in order to help customers micro-manage their usually scarce cash. Most of our customers are on benefits whether this be solely on benefits or a combination of low earnings plus benefits. I have over 30 years experience in this type of activity and the notion that 'monthlyising' (excuse the Dylan Thomasism) a low overall family income somehow prepares a family for work is complete anathema to me. The only thing monthly pay will prepare many low income families for is a week with a full belly followed by three weeks of hunger! When I started out in this business (mid 70s) the pattern then was Friday payday, so full bellies Friday, Saturday, Sunday but then the empty bellies thereafter could be withstood because another Friday was soon coming. The situation improved over three decades as different benefits were paid on different days and particularly where mixed with low earnings, low income at least became very frequent. Waiting a week for the next low income was bad enough then (and now) ... for many though the prospect of waiting a month will be unbearable! (Simple analogy: if you were thirsty and in an arid place would you prefer a survival size bottle of water each day or a barrel once per month on the hope it lasts? This intended action will be bad enough for many families but the justification used by IDS"-



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the Secretary of State-

I am tempted to say at this point that I rest my case, but I am afraid that I have some more points to make.

According to the Women's Budget Group, advisers on debt and welfare benefits in Oxfordshire recently asked some clients their views on monthly payments. They expressed real fears about not being able to manage and getting into debt. One new claimant of employment and support allowance said that,

A client with mental health problems said that he was still finding it difficult to adjust to the change to fortnightly payments because he felt that he was not very good at managing money or at adapting to change. Of course he might qualify for the promised budgeting support, but, as the Women's Budget Group points out,

These worries are reflected in departmental research into perceptions of welfare reform and universal credit among claimants and others published last week. If noble Lords will indulge me, I will read from it. The report states:

"The prospect of a monthly payment was highly contentious in this research. In particular, those on low incomes anticipated that they would have great difficulty in budgeting as they are used to more frequent payments and do not tend to have much of a financial buffer to fall back on. Some of those working were more receptive, but these tended to be people who were earning more and already being paid on a monthly basis. Many low paid workers reported being paid more frequently and they reacted in a similarly negative way to this proposition to those currently receiving benefits ... Only a small minority spontaneously appreciated that monthly payments could prepare those claimants not currently in the workforce for working life. Overall, there was a strong feeling that there should be options, or at least an opt-out from the default offered where required".

There is a contradiction at the heart of this proposal. As part of the policy rationale, the departmental briefing paper states:

"Making decisions over household finances and budgeting in the most appropriate way to meet family needs is best done by the family itself".

Yet the Government are imposing their own views about one of the most crucial factors in budgeting: the frequency of payment. I suggest that the reason is that the desire to create,

emphasised by the Minister at Second Reading, in line with nudge theory, has blinded the Government to the reality of living on a low income.



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In its recent report on means testing, in an otherwise pretty clean bill of health for the impact assessment on universal credit, the National Audit Office observed its failure to address the question of claimant burden. I do not know if the briefing that arrived today does this, but certainly the original one did not. However, this claimant burden does not derive from the nature of the universal credit means test itself. I fear that the Government are creating a big burden for claimants that could corrode the universal credit architecture and undermine its credibility with claimants. It smacks of the kind of social engineering that Conservatives have traditionally been suspicious of.

In a recent Parliamentary Answer the Minister stated that:

"The department has adopted the principles of user-centred design for universal credit ... This places customers at the heart of the design process to ensure their needs are reflected in the way policies are delivered".-[Official Report, 3/10/11; col. WA 156.]

Yet the department's own research that I have just cited indicates that this is simply not the case with regard to frequency of payment. Moreover, the researchers warn that monthly payment is one of a number of potential risks that could jeopardise the successful delivery of universal credit. They advise the department to consider mitigating action. We are offering the Minister a number of courses of mitigating action in these amendments. I should say that the noble Baroness, Lady Meacher, gives her apologies for not being here and says that she strongly supports the amendments and will pursue them on Report if necessary.

I hope first and foremost that the Minister will reconsider the decision to pay universal credit monthly-or, at the very least, will allow the claimants to choose between fortnightly and monthly payments in line with the Government's own philosophy of choice. As a fallback, a third amendment would allow a claimant proactively to choose fortnightly payments while retaining monthly payments as the default, and the fourth would require a review of the impact of monthly payments should they go ahead. I beg to move.

Lord Kirkwood of Kirkhope: My Lords, I am privileged enough to share the billing on the amendment with the noble Baroness, Lady Lister of Burtersett. She has made a very powerful and comprehensive case, and there is not an awful lot left to say, except one or two things. This is a significant change. In my previous incarnation, as a member of the Select Committee in the other place, I was always surprised at the extent to which weekly budgeting is a feature of life that is qualitatively different. If you do not live under those circumstances, it is hard to appreciate how difficult it is. A change to monthly payments would be extremely significant. I feel that it is part of my duty to protect the Minister of State from his normal missionary zeal in many of these cultural attempts to change the way people behave. They are perfectly logical, but potentially really quite dangerous if we take them too far and too fast.

The first thing I hope that the Minister will do for the Committee is put some flesh on the Government's proposed mitigation factors which talk about exceptions and budget support. The noble Baroness, Lady Lister,

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correctly asked for those to be made clearer. She is right that if this is to be done properly and the system is to be equal to the task, it might cost more than the department currently thinks. That has the potential to wreck some of the elegance of the simplicity around universal credit, which would be a bad thing. However, before the Committee can make a judgment on the Government's position, we need to listen carefully to what is planned.

Secondly, this is a significant change because there is no appeal on frequency of payment. As colleagues know, throughout the benefits system there is a highly developed set of circumstances for people who feel that they are being short-changed or not being properly served. There are means of recourse through systems that are well known, well used and well supported by the legal advice community, pressure groups and the like. There is no right of appeal here, so if we get it wrong, people will have nowhere else to go.

There is an issue too about monthly payments. Monthly is not the same as 12 times a year. People pay their bills monthly because that is how often the bills come in. So it is not just a simple question of weekly payments or not, it is actually that people being paid on a weekly basis know when the utility bills will come in and know where savings have to be made in order to meet them. It is not an easy thing to move from weekly payments to 12 times a year.

I absolutely agree with the noble Baroness, Lady Lister, about the payday loans issue, and I think that it will become seriously significant. I would draw attention to what I am sure colleagues already know intellectually, which is that discretionary payments made under the Social Fund are flying up under the changes we are making now. The Government say that we need not worry too much about it because there are local circumstances-400 of them in England, not to mention Scotland and Wales-and they will fill the gap. I remain to be convinced of that. We need to be careful that we are not creating a loan shark's charter at the expense of lower income households in our communities.

We need an impact assessment, and many noble Lords were right to draw attention to that. I look forward to seeing the document that was magicked to some effect out of the Minister's top hat earlier today, and long may that continue. If we have one of those every time the Committee sits, we will make some serious progress. In the end, however, this is a question of choice. For me, Amendment 27 does it perfectly. It states,

I understand the driver to replicate the monthly situation. Obviously everyone in this Committee has a natural rhythm of payments constructed around monthly bills, direct debit payments and all the rest of it. The ability for the claimant to request that this is the way that they work and to do otherwise would cause them serious distress would still leave them with a default position where they would largely get what they want, and the people who are nearer the labour market would be perfectly happy to accept the discipline that they need to make this work successfully.



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5.45 pm

The noble Baroness, Lady Lister, also made the point that this will create pressure on women because women are predominantly the week-to- week managers-we have to be careful about this characterisation because it is gender-typing of the worst kind-but by and large in my experience the males pay the utility monthly bills and the week-to-week household budgets for food and dietary provision are mainly carried by the women. It is the week-to-week budgets that will be put under particular pressure if we move in this direction without thinking about it.

Finally, there was some experience of a change of this kind in 2009 when we went from weekly to fortnightly benefits, as some colleagues may recall, and I think the Government are founding this on the fact that that was easy. I do not think that it was as easy as people imagine. I would like to see the evidence for saying that the change was easy-I think it was quite difficult. However, there is a world of difference between moving from weekly to fortnightly and moving to monthly, and we underestimate that at our peril.

These are significant amendments. I do not think we are asking for much. Unless the Government are prepared to say that they are offering a really in-depth, face-to-face, money-upfront support system for those who fall foul of these new proposed monthly payments-I will listen with great interest to whether or not that is the case-we risk causing additional hardship to the financial limits that people are going to be faced with in future. I am delighted to support my noble friend of many years' standing in the work that she has done. She is an academic, she is an expert-she knows what she is doing. She is right and I support her.

Lord Northbourne: My Lords, I do not want to delay the Committee. I am sure there are many people in this room who have more experience of these issues than I do. However, during 16 years chairing the youth department of Toynbee Hall down in Tower Hamlets we came across quite a lot of problems with moneylenders in particular. I strongly support fortnightly payment. Monthly payment will give much more opportunity for unscrupulous traders to profit from budgeters who are perhaps not very experienced.

Baroness Sherlock: My Lords, I have little to add to the rather remarkable contribution made by my noble friend Lady Lister, but I want to address a couple of points.

First, I was delighted to see the DWP research report, Perceptions of Welfare Reform and Universal Credit, and I commend the Minister and the department for taking this kind of research so seriously. The foreword to that report says:

"The Department for Work and Pensions ... is committed to involving users throughout the development of Universal Credit, from setting out the criteria for a good experience to detailed design decisions. This user involvement helps ensure issues are known, understood and mitigated as the Universal Credit system is being built".

I want to commend that. I thought it was a very good decision. However, it means that if you ask people and they give you answers, it really is wise to listen to them. Having sought the opinion of those who are going to

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be using the system, and having been told so clearly that only a small minority appreciated monthly payments as a route and the majority clearly felt it was a problem, is the Minister at all persuaded by that?

I have two other points to add. I am particularly concerned about the impact on those who are in that territory between work and out of work. The most compelling argument made today was the fact that if only half those people are paid monthly at the moment, the whole idea that moving to monthly payments mimics work simply falls flat. If people are currently paid weekly or fortnightly, they could be in the bizarre position of having their wages paid weekly or monthly and their universal credit paid monthly, which seems ridiculous. At the moment with tax credits people can opt to be paid weekly.

I declare an interest as having been involved in advising Ministers on the design of tax credits, as noble Lords will know. I can understand the desire of the centre to want to simplify this. I really understand why having everybody on monthly payments would be an awful lot easier for the process, as well as the design problems in terms of processing capacity of having people opt into a variety of options. However, this feels so important that if the noble Lord is so committed-and I know he is-to the aims of universal credit in supporting people in work and to getting the architecture right, it would seem that this is a fairly fundamental piece of the architecture, and we get it wrong at our peril.

I have one final point. I spent some years working with single parents. Most of them had come out of relationships or marriages. One of the things that they always said they liked about being single-there were many things they did not like that were very hard-was that they could control the money. I heard many of them describe the struggles that they had had to protect the money coming into the household and to have it spent on the children. They described a whole range of situations that I am not in any way suggesting are typical, but they are none the less not invisible or irrelevant either. Some said that they quite often had a situation where their partners would periodically go out on a binge and spend the money. There were people who had quite a bit of money who would say: "I fed the children on child benefit till they got back".

One thing about credits being paid directly to them and coming in weekly was that at least they knew there was another payment coming along soon. If in this situation one partner spends the money unwisely, it is an awful long wait until the next payment comes in. Would the Minister consider that alongside some of the later issues we are going to discuss about the Social Fund and single payments being made only to one partner or to a joint account? This is an area of which the Minister would be well advised to take careful consideration.

Baroness Campbell of Surbiton: My Lords, I would also like to support the amendment of the noble Baroness, Lady Lister, and congratulate her on her first amendment. What a good first amendment. Disability charities, including the full membership of the Disability Benefits Consortium, have expressed grave concerns to me that many disabled claimants, particularly

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those with mental health problems or learning disabilities, will struggle to manage their budgeting over monthly intervals. With the proposed replacement of the discretionary Social Fund and by confusing an unpredictable plethora of local schemes, accessing crisis payment when budgeting problems arise will be very hard for this group of people also.

I support a man with mild learning and behavioural difficulties. He can just about manage his two-weekly payments and often, at the end of the two weeks, it is up to his friends-normally me-to sub him until the end of that two-week period. I have no idea how he will manage on a monthly basis. He falls under the radar of most help and I know that he would not seek it anywhere but me. So it also puts a burden on families, friends and other poor relatives who are often in the same situation to make up the shortfall. I support the noble Baroness and would like to know what the Minister has in mind for this particular group of people to cope with a monthly payment.

Lord Skelmersdale: My Lords, at Second Reading I think all of us supported the idea of simplicity for universal credit. Of course, simplicity works both ways: it works in favour of the beneficiary and in favour of the department. If you offer people a choice, you are mucking up that simplicity as far as the department is concerned and, inevitably-and I am sure my noble friend will tell me-there will be a cost in so doing. He may even be able to quantify that cost.

As most of the Committee will know, my wife runs a small business which for part of the year depends entirely on attracting extra casual staff. Two years ago, she went to them and said, "It would make life a lot easier for me if we could pay your wages monthly rather than weekly". Some of them immediately were very happy to say yes; others to say no. Eventually, without undue coercion or persuasion-except from their colleagues-they decided they would all go on a monthly wages basis. That is fine, but what I find difficulty with in the amendments is the proposal to offer people a choice and for the department to have to stick to that choice. For me, payments should be either fortnightly or monthly. We have heard very good arguments against monthly payments, which I accept. However, the second amendment in this group-the either/or amendment-is just plain loopy.

The Earl of Listowel: My Lords, I, too, thank the noble Baroness, Lady Lister of Burtersett, for tabling these amendments and speaking to them so persuasively. I was very concerned to hear what she had to say. Three issues came to my mind. First, I thought of the children of alcoholic parents and of parents who misuse substances. If these individuals have a large sum of money in their hand, they can go on a bender and spend huge sums on alcohol, crack and other substances. If there is no hope of getting money fairly shortly for their children, the children will be in a very difficult position.

My second concern is more general. I was reminded of it at lunchtime today, at a meeting of the Associate Parliamentary Group for Parents and Families, which my noble friend Lord Northbourne chairs. There was

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an intervention from the noble Baroness, Lady Tyler, the chief executive of Relate. She referred to the 120,000 most chaotic families about whom the Prime Minister is particularly concerned, and for whom he has given specific responsibility to the Department for Communities and Local Government. I would be very interested to learn what assessment has been made of the impact of these changes on those chaotic families. Perhaps the Minister will consult the Department for Communities and Local Government about what the change might mean for them.

Thirdly, in my capacity as vice-chair of the All-Party Parliamentary Group for Looked after Children and Care Leavers, it seems to me that this change might contribute to more children coming into care because their parents, who are somewhat chaotic, will be put under additional stress as they try to make ends meet. This might be an additional burden on them that will lead to family breakdown. I hope that that is not overstating the case, but what I heard troubled me, and I would like to know more about the impact from moving from weekly to fortnightly payments. There seems to be some questioning of the evidence that that was been done without much harm. I look forward to the Minister's reassurance on these issues.

Lord Boswell of Aynho: My Lords, I will speak briefly. Points have been made very eloquently by the noble Baroness, Lady Lister, and others. There is a common concern that this should be got right. Perhaps there is a slight subtext that if this is the nail in the shoe that gets the whole thing discredited because it does not work or gives rise to disturbing social consequences, we will have lost the great prize of universal credit that many of us want.

For the reasons that my noble friend just enunciated, there is an argument against complexity and having a double system. We have heard about the difficulties of having weekly, two-weekly and monthly payments. It could make things difficult and give rise to error and potential arrears, for example. We do not really know what will happen before we undertake this. One has to judge whether to go ahead and see what happens. If the Minister can explain with sensitivity how he intends to introduce safeguards, I am with him.

The most important point is picked up in Amendment 28. We need to have a mechanism, as I suggested at Second Reading, for assessing after the event whether this works-and, if it does not work, which we hope it will, for applying the brakes and changing it without loss of face. It is worth looking at this. There may be good reasons for doing it, but if it puts undue pressure on some of the most vulnerable people and their families, we should recognise that. In a wider context, it would not be worth saving small sums if we found that we could not deliver our intended objectives.

6 pm

Lord McAvoy: My Lords, although I did not intend to speak after the amendment was moved so excellently by my noble friend Lady Lister of Burtersett, she holds to the hope that the Minister's attitude is not set in stone, so I have decided to contribute a point of view. One thing about the other place along the Corridor is that its Members come from various backgrounds,

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especially from working people. That House achieves a balance and gets a view that perhaps individuals over here do not have. When people over there hear a view, it may influence how they vote on legislation.

My noble friend Lord Kirkwood of Kirkhope said that he does not have much experience of this, but I sure that if he thinks back to where he comes from-Cranhill, a housing estate in Glasgow-he will remember that when the family allowance of eight shillings was paid on every week on Tuesday, it was a lifesaver. He was also correct to point out that it is being sexist against women to say that they carried the burden of budgeting. They were responsible for making sure that the family budget and the household were run properly. Certainly that was the case in my family, one with a very matriarchal mother. Without her, I think our family would have been lost. I can assure colleagues that the certainty of a weekly payment, not a monthly payment, is still very important to a certain sector of society.

The amendments offer choice. I know that the noble Lord, Lord Skelmersdale, criticised that as perhaps being confusing, but the noble Lord, Lord Boswell of Aynho, in very reasonable tones defended and advocated it. I certainly believe in the choice outlined in these amendments. In addition, other amendments would provide the certainty of knowing that these decisions, which will impact on so many people's lives, will be covered by a review. We can look at the evidence to see the effect of different types of payment periods.

I am encouraged by the Minister's attitude and I hope that my noble friend Lady Lister has read it right. I want to bring to the debate the point of view of someone from a family for whom, when we were growing up, that payment of eight shillings of family allowance was worth a lot. I am sure that quite a lot of people remember the family allowance, although I had better be quiet about age. I can assure the Minister and my colleagues that that eight shillings a week in family allowance, paid every Tuesday to the mother, the person who actually ran the household and looked after the children, was absolutely essential. I hope therefore that the Minister can see his way at least to considering some movement on that.

Lord Skelmersdale: My Lords, before the debate continues, I have to say that I am afraid that the noble Lord, Lord McAvoy, has somewhat misunderstood what I said. I came down firmly in favour of fortnightly payments. What I did not say, if for no other reason, was that the move from weekly to fortnightly payments is so recent. I do not believe that it has yet bedded down.

Baroness Howe of Idlicote: My Lords, I congratulate the noble Baroness, Lady Lister, on her excellent exposition of the case and the passion with which she presented it to us. Like my noble friend Lord Northbourne, for many years I have been and still am involved with the Peckham Settlement charity. I know that there was considerable concern when the money that the women had charge of ran out for one reason or another.

I am very impressed by the range of options here, but I would really like to support the one identified by the noble Lord, Lord Kirkwood of Kirkhope, because

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I think that really said it all. It is a question of choice, and that should be what we give individuals in this situation. We know the number of times families have gone hungry when women have not had control of the money, for all the reasons that have been explained previously. This particular option is the one that we should all consolidate behind. More than anything else, I say this because the more people who speak in favour not just of this amendment but of what is being said in all these amendments, the more likely we are to persuade the Minister to have another look at this, and above all to take it back to his colleagues, who may have rather different views, and to try and persuade them.

Baroness Hollis of Heigham: My Lords, I support the amendment of my noble friend Lady Lister, which she moved so powerfully, and I certainly hope it will cause the Minister to reflect on the issues she has raised. I want to speak to a related issue that could be raised under Clause 29, but I raise it now because I think it will make worse the situation that my noble friend has described, and I am fearful. This issue is the payment methods for housing benefits-not to whom they are paid, which we will come on to later, but how they are paid. I hope the Minister can give us reassurances on that, and if not, that we can follow this up in the discussion afterwards.

Your Lordships will know that HB is very complicated to assess and to administer. Local authorities will often not allow a member of staff to fly solo on handling HB claims until they have had some six months-I repeat six months-training and chaperoning. This is almost as much as a police officer. The reason, of course, is that it involves checking entitlement, rents, family size, the non-dependence in the home, property size, the landlord's veracity, any disability, backdating, separating out service charges-including fuel, water rates and energy bills-and careful checking against fraud, because it is a big-ticket item. It takes a good local authority with intimate knowledge of its locality an average of between seven and 10 days to process a housing benefit claim. Crawley Borough Council, for example, which is a very high performer, processes about 40 per cent of new claims in one day and the rest in under 10. None the less, do we think that universal credit staff can deliver a benefit as complicated as HB?

In future, this will be done online by a family in Exeter, with queries, I understand, to a call centre in Warrington. That call centre will be handling over 30,000 new HB claims a week: nearly 7,000 a day. Families competent in financial management may be able to cope; we calculate that perhaps 40 per cent of families are ready to use the online process. Those who are most dependent on HB are the same group who are most dependent upon and in need of weekly and fortnightly payments: people with, say, mental health problems or learning difficulties, or other people who for whatever reason lead chaotic lives. These are the people who find that their paperwork is lost, that landlords are unhelpful, that call backs go missing, that deadlines pass. I understand that there is a 63-page form to fill in: one mistake, and no money gets paid. I hope the call centre line is free. Is it? The lines will be

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jammed, callers will have to call back repeatedly, and they will have to hang on for long periods of time while their call is transferred to someone who knows something about HB-that is, if the call has not been cut off in the mean time through the handing-on process and they have to start all over again.

All that is handled now with skill, patience, good will and huge experience by local authority and housing authority offices. Local government officers find that 66 per cent of all those on housing benefit need the face-to-face service they offer. The Government are assuming that only 10 per cent will do so, and that that 10 per cent will be serviced by Jobcentre Plus offices, whose staff are not only not experienced in housing matters but in physical terms are often inconveniently located. For example, one district in Kent with 100,000 people has no Jobcentre Plus in its area. Claimants needing a face-to-face service in the north of the district have a £9 bus ride to get to and from the Jobcentre Plus offices, while those in the south have a £7 bus ride-a day's allowance for the claimant gone on a day's travelling costs.

At the moment, the only experience that DWP staff have of housing issues is from 200,000 home owners nationwide, less than 5 per cent of the jobseeker's allowance caseload. Housing cost assessments will go up from 200,000 to 4.83 million. So I have some questions for the Minister, and I apologise for not giving him advance warning of them, but they are absolutely integral to the whole issue of how payments are made.

Will claimants get an itemised statement of the elements making up their universal credit so that they can see what they should get in housing benefit and thus, what is often the trickiest and most difficult to compute, be able to compare it with previous awards? Will claims get slowed down to the slowest part of the process? If there is delay over housing benefit, will the claimant know that that is where the difficulty lies, and will they none the less receive the rest of their universal credit, which may be more open to real-time assessment? At the moment, if a claimant gets their jobseeker's allowance paid, the landlord can be pretty confident that they will get their housing benefit. Will that happen in the future?

If a claim has to be investigated further, perhaps because the family needs an extra bedroom because of disability, and it takes a fortnight or more to get the required information back from GPs, will the entire universal credit payment be held up until it is resolved? What, as my noble friend so eloquently argued, will the family live on in the meanwhile? What plan B does the Minister have in mind for the individual living on the breadline, especially since that same individual may want the housing benefit to be paid directly to the landlord? However, the Minister wants it paid directly to the tenant, who will now be far more exposed to the vagaries of administration as well as to the temptation of fraud.

Perhaps I can suggest a plan B to him: get local authority staff who are highly experienced, skilled and swift to do the housing benefit calculation for the DWP and-given that central and local government

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computers already communicate with each other on these issues and the whole system is online-get them to feed their data into the central universal credit processing centre. After all, the ATLAS project means that local authorities have a direct link into JSA, ESA and IS. On top of that, they can access electoral records, they can verify residency, they have knowledge of local HMOs, and they have street knowledge. No call centre 200 miles away can identify a contrived tenancy, or whether too many individuals all appear to be claiming housing benefit for a shared property, or whether rent arrears are beginning to mount up and intervention is necessary. Local housing benefit staff can and do, and they act on it. Having a local contact point would also stop the phones being jammed by worried landlords wanting to know whether their tenant is going to get housing benefit, which is essential if we assume that most tenants will in future get their housing benefit paid direct to them. Landlords want the security of a paid rent, and hence their demand that rents be paid directly to them, but they also rely on cash flow. Cumbersome administration that makes the timing of their payment from the tenant unpredictable is at least as significant.

Claimants who have steady circumstances and basic competence will cope with an online system supported by a call centre and may very well be able to cope with monthly payments. However, the claimants about whom so many of us around this Table, as well as local authorities and housing associations, are most worried, are vulnerable, chaotic and prone to error. They may have literacy difficulties, they are in constant flux and they will not cope. Many of the most vulnerable are also clients of other statutory services. No call centre can deal with them or will interface with them. The local HB office does this each and every day.

Tax credits are relatively easy because they are based on the previous year's income, with fixed periods of claim. Yet even here, as I know to my pain, the computer nearly toppled over and the backlogs were huge because no one had appreciated the rollercoaster nature of the lives of so many lone parents. Half of them had more than a dozen changes of circumstance per year, many connected to childcare. The computer was often three changes behind. HB is far more complicated than tax credit. It exposes the tenant to the much greater risk of homelessness, and no unemployed tenant facing homelessness will concern himself with looking for a job rather than trying to secure his home, which is the outcome that we want him to seek.

We will strengthen UC and protect some of the clients of UC most at risk by developing a partnership with local authorities, particularly as they will be holding and distributing the discretionary housing allowance to soften the difficulties that will follow from the tough new HB changes that we will no doubt debate in a later session. For the Government, local authorities represent a back-up resource that it would be foolish to squander. I realise that I have sprung some questions on the Minister. I hope that, if necessary, we can follow this up with a meeting. They were triggered by the concerns raised by my noble friend's amendment, and by the additional difficulties inherent in the complexity of the nature of HB, which the system as presently constructed cannot begin to address.



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6.15 pm

Lord McKenzie of Luton: My Lords, I support the amendment of my noble friend Lady Lister and congratulate her on an incredibly impressive first amendment. We look forward to many more. I hope that the Minister can see that we are here to help. He has heard not only the voice of experience today but particular proposals from my noble friend Lady Hollis to help him on housing benefit issues. I hope that this well of experience and good will will enable us to move forward on universal credit.

One thing that came across very clearly in the debate was the almost universal voice of experience, whether it was people's own household experience or that of people such as my noble friend Lord McAvoy who worked with poor people and helped them claim their benefits in the existing maze of complexity. We have heard powerful voices warning of the risks of imposing on everyone the monthly payment basis, for all the reasons that have been heard.

There are particular issues for women. My noble friend Lady Lister said that it is largely mothers who manage poverty in the household. The noble Lord, Lord Kirkwood, was on the same page on that. Studies show that by and large the male member of the household is more likely to be responsible for monthly bills, whereas women tend to do the weekly shop. Therefore, women are potentially particularly disadvantaged by these proposals.

A lot of work has gone into producing real-time data from HMRC. That is at the heart of delivering the universal credit project. Obviously, that is predicated on the formula of monthly payments. As a practical matter, how difficult would it be either to flex on to fortnightly payments or for people to have a choice? I am surprised by those who argue against choice. We all accept the benefits of simplicity, for the reasons that we have debated and will continue to debate. However, a balance must be struck. Simplicity can shut out fairness in a range of circumstances. That is perhaps the dilemma that the Minister faces today.

I think it was the noble Lord, Lord Boswell, who said that it would be a pity if we got this wrong and in doing so undermined the prize of the universal credit, and I very much agree with that. I hope that the Minister will listen to all those who have spoken. The noble Earl, Lord Listowel, spoke about his particular experience of dealing with poor and disadvantaged, chaotic families, as did the noble Lord, Lord Kirkwood, and my noble friend Lady Sherlock. What would happen if one partner spent unwisely in that relationship? What would be the outcome, particularly for children? I hope that the Minister has heard a powerful message today and that it will genuinely influence him in looking at this again. If we want universal credit to work, this could be the key stumbling block.

Lord Freud: My Lords, I start by congratulating the noble Baroness, Lady Lister, on her first amendment, and I hope that she does not have too many like it. I was very impressed when she said that she was a conservative, which was obviously supported because my noble friend Lord Kirkwood called her his noble friend. Clearly we have some cross-dressing going on.



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In the policy briefing note published on 12 September, we confirmed that the universal credit will be paid monthly. However, we do not intend to specify the payment frequency in primary legislation. As with all existing benefits, this will be dealt with in regulations made under the existing powers in the Social Security Administration Act 1992. That approach gave us the flexibility, for example, to increase payment periods from weekly to two-weekly for most out-of-work benefits. The amended provision would require the Government to pay universal credit more frequently than monthly. Amendment 27, for instance, goes on to provide that in some cases payments would be made twice monthly.

I need to make the point about the difference between assessment periods and payment periods, which is important to bear in mind. Currently, existing out-of-work benefits are made on an assessment period of a week, with a fortnightly payment cycle. That is fairly typical. The universal credit benefit represents a new approach focused clearly on work, which encourages out-of-work households to budget on a monthly rather than a fortnightly basis in the belief that it will better prepare people for the reality of working life. The figures have already been used. Currently, 75 per cent of all those in employment and 51 per cent of those earning less than £10,000 a year receive earnings monthly. In addition, monthly direct debits for household bills are often cheaper than more frequent billing options.

Many noble Lords raised the evidence base. As noble Lords know, we are conducting qualitative and quantitative research with claimants on many issues but particularly on the payment frequency issue. As some noble Lords have pointed out, on 7 October we published a report, Perceptions of welfare reform and Universal Credit. This outlines findings from research we conducted with claimants, the public, employers and staff in December 2010 and January 2011. There were critical findings in that piece of research that we are looking at with great attention.

I understand that many people on low incomes will be used to managing the fortnightly payment of benefits, and I am determined to ensure that there will be appropriate budgeting support to meet the needs of claimants. We want families to be able to manage their financial affairs in a manner that best reflects the demands of modern life, whether they are in work or out of work, and we are working with stakeholders and benefit experts to that end. We are setting up a series of demonstrator projects, as they are called, with housing associations and local authorities to look at how to structure the payment of rents to landlords. These demonstrator projects will look at a wide range of budgeting support. We need to make sure that budgeting advice and support is available for those who need it in order to help them manage the change.

We also need to consider those exceptional circumstances where more frequent payments will be required. To pick up the point made by the noble Baroness, Lady Campbell, people with mental health problems are an example of a group that may need an exceptional service. To pick up the point made by the noble Earl, Lord Listowel, where there is proven abuse or risk to other members of the family, one would have to look at the payment arrangements.



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If you separate assessment from payment, the monthly assessment is intended to reduce the burden on claimants and reduce the risk of overpayments compared with a system where benefits are reassessed on a weekly basis, so there is a separation between the assessment period and the payment period. To pick up a question from my noble friend Lord Kirkwood on the impact assessment-

Baroness Hayter of Kentish Town: My Lords, the Minister suggested that payments for those with mental health problems, for example, could be looked at. Could he address how that might stigmatise a certain group; that is, when not everyone can choose to be paid fortnightly, just those with mental health problems?

6.30 pm

Lord Freud: My Lords, I was coming to this issue. The universal credit is a rather differently structured benefit system. We have talked in the past about much greater flexibility with earlier draw-downs and an automatic repayment system. We are looking at these kinds of structures. When I talk about budgeting support, I am not just talking about education, advisers and that kind of support, I am also talking about a degree of flexibility in the system that simply does not and cannot exist now. I do not think there would be any stigmatisation at all in how people use this system. We have not worked out all the detail of this, and noble Lords have given me personally quite a bit of food for thought. How we develop these regulations and get them right so that we do not run into the kind of problems which noble Lords have so powerfully raised today is something that we will look at very closely. On the stigmatisation point, my intention would be that it would be invisible, and within the universal credit system, it can be invisible.

Let me revert to the question put by my noble friend Lord Kirkwood about the impact assessment. I have to tell him that payment frequency is not one of the issues in the impact assessment. It was referred to in the equality impact assessment where we said we were carefully considering the claimant welfare implications of the options, so that is where it is.

Lord Kirkwood of Kirkhope: May I clarify the point for the avoidance of doubt? Is there a technical issue about frequency of payments? I understand and am listening carefully to what he is saying about assessment periods versus payment periods. Are his new computers going to be agile enough to pay fortnightly rather than monthly?

Lord Freud: I think the noble Lord, with his normal subtlety in his amendment, has made a distinction between bi-monthly and fortnightly. This is one of those issues, to be honest, where if you start delving into it, you will end up with daily rates because of the arbitrariness of both weeks and months. It is not a straightforward thing to do. Clearly, at one level all the utility systems are driven on a monthly basis, while other areas are driven on a weekly basis. With this system, we are one of the drivers of the way people behave and of social change. We should not forget

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that; how we do this will shape the norm, so it is not just a question of saying, "This is what everyone does. We must adapt to it". There is an element of saying, "If we do it like this, we will shape the way people arrange their lives".

Lord McAvoy: The system has a degree of flexibility if you alter the way benefits are paid. For instance, when it is a holiday Monday, the whole thing seems to change and payments can be altered then.

Lord Freud: My Lords, in the spirit of developing a system together, which we seem to have moved into, we can look at a greater amount of flexibility. Some things are not that expensive to do, but others are. Payment systems are not necessarily hugely difficult. I do not have my computer gurus sitting around me whispering how much things cost, but my feeling is that there are areas of flexibility here which we are going to explore in great detail in the next year or so in order to get this right. We can be flexible and make changes if we feel that things are not right.

I turn now to the series of questions raised by the noble Baroness, Lady Hollis, on the relationship with housing benefit. I will try to deal with them one by one. The universal credit will be an itemised statement. It is being developed and at the moment comprises three layers. You will see the summary on the top sheet, so to speak, and a somewhat more elaborated thing when you hit the button for the next level, and then you see pages of the stuff at the third level, which we do not think a lot of people will go to. However, we give them the option to do that. The statement is simple; it itemises the intention. The structure that we have arrived at has been the subject of a lot of toing and froing with the customer insight people. A couple of weeks ago I sat on one side of a piece of glass watching how people were using the system. That is where we have ended up in that particular bit.

I was asked whether this process would be slowed down to the rate of the slowest element. Where you have some decided elements, the JSA rate and so on, we should be able to get that going straight away without tying it up. We will be able to separate out elements with new claims involving big new changes rather than the whole claim waiting for the last little bit of evidence on, say, housing to come through. We are looking at tackling this matter much more flexibly.

Baroness Hollis of Heigham: I am very grateful for the care and attention that the Minister has given to the questions. However, oddly enough, if you can fragment that way, you can certainly fragment in terms of payment rhythms.

Lord Freud: My Lords, I thought I had delicately hinted that there could be some flexibility around that. In future, I will be less delicate in making my points.

We have discussed the other elements. The noble Baroness, Lady Hollis, directed a bit of abuse at the Warrington call centre. We are developing the system in Warrington, but that does not mean that the call centre in Warrington will do it all. We will have a much more sophisticated system. Indeed, the noble Baroness's

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thoughts on using ATLAS, and the experience of housing benefit staff around the country in that regard, are very good. We are talking to local authorities to get the detail of this right. It would not make sense to lose the expertise of housing benefit staff, so we are involving them as we develop the process. It is too early to describe the system because it is not yet developed. However, the noble Baroness's advice chimes with the way we are going about this, and we are grateful for it.

Amendment 28 would require the Secretary of State to conduct an annual review into the impact on claimants of monthly payments. I have already set out our firm commitment to safeguards, such as providing budgeting support and the facility to make more frequent payments where necessary or appropriate. I can assure noble Lords that in addition to this we will continue to monitor the impact of these policies after they are introduced. I urge noble Lords not to press these amendments.

Baroness Lister of Burtersett: My Lords, I am very grateful to my noble friends and noble Lords for their support. I am struck by the extent to which noble Lords throughout the Committee share my concerns and have made important points in support of these amendments. There is perhaps a slight disagreement over whether we should be pushing for fortnightly payments or for choice. My preference would be for fortnightly payments, as argued for by the noble Lord, Lord Skelmersdale. However, I tabled a menu of amendments thinking that choice would probably be more acceptable to the department than what I prefer, which is the status quo. Perhaps that is the one way in which I am a conservative. But as I have argued, and according to the Financial Times, the panoply of flexibility and special assistance which the Minister talked about will bring in complexity if we go down the route of monthly payments, and we have not heard what the costs will be. I am very disappointed with the Minister's response because he has not really engaged with the arguments that I put. Therefore, my supposed flirtation with conservatism has been very short-lived indeed.

The Minister made great play of the distinction between the assessment period and the payment period, and I understand that. However, the argument seems to support my position rather than his because paying a benefit more frequently does not affect proposals to assess it on a monthly basis. One could have a monthly payment that is paid in two tranches, which would make it easier for people to manage. The only hope that I got from the Minister was the statement that we had given him food for thought. I hope that it will not be too indigestible for him-actually, I hope that it will be indigestible, because he will then think seriously about it.

He has not answered some of the most basic questions. I know that the special assistance will not only be budgeting advice. The papers have said that it will "include" budgeting advice. However, it is still not clear who is going to provide this. Will it be officials? If I were a claimant, I am not sure that I would want officials advising me on how to budget. Or will it be the poor old voluntary sector/big society, which will

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be on its knees anyway because of cuts, the effects of the legal aid Bill and so forth? I am not at all reassured by vague talk about flexibility and budgeting support.

The Minister said that the Government would look at areas of flexibility after the next year or so. I am sorry, but I want to know what the position is by the Report stage. While I have made clear that I realise it is not appropriate to write into the Bill itself the frequency of payments, given the strength of feeling that has been expressed on all sides, it is not good enough that we should have to wait a year; the Bill will be an Act by then. We want to know before the Bill goes back to the other place what is going to be done to ensure that the kind of problems that I and other noble Lords have raised will be adequately addressed. One of these amendments must be the way to do it.

Lord Newton of Braintree: I apologise for intervening: I probably should not, as I was not here earlier. However, if the House authorities schedule at the same time on one day on the Floor of the House and in this Committee three Bills in all of which I have an interest, it presents a difficulty. The Minister should know that had I been here, I would have been rebellious. I endorse in particular the noble Baroness's point about needing to know, not at some vague time in the future but before the Report stage, what the Government have in mind. Perhaps I might also say to the noble Baroness-craving the indulgence of the Committee-that I thought the Minister went as far as Ministers can go under these circumstances towards saying that he would think again, and that this is not the last word. I think that she should be pleased with that.

6.45 pm

Baroness Lister of Burtersett: I am very grateful to the noble Lord, who perhaps I could call a noble friend from the past. Being new to this House, I perhaps do not understand the nuances of ministerial speech as well as some of my noble friends. I hope that the noble Lord, Lord Newton, is correct, but it does not change the point that people outside who are watching our proceedings also do not understand these nuances, so we need to have something much firmer before Report if we are to accept the Minister's assurances. That said, I will withdraw the amendment.

Amendment 25 withdrawn.

Amendments 26 to 28 not moved.

Clause 7 agreed.

Lord De Mauley: My Lords, this might be an appropriate moment to have a 10-minute comfort break.

The Deputy Chairman of Committees (Lord Haskel): The Committee stands adjourned for 10 minutes.

6.45 pm

Sitting suspended for a Division in the House.



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6.56 pm

Clause 8 : Calculation of awards

Amendment 29

Moved by Baroness Hayter of Kentish Town

29: Clause 8, page 4, line 12, at end insert-

"( ) an amount in respect of prescribed unearned income calculated as in paragraph (a),"

Baroness Hayter of Kentish Town: My Lords, depending on how the Minister responds, Amendment 29 is, I hope, a probing amendment. It deals with the treatment of income in universal credit. As drafted, paragraph (a) of subsection (3) deals with earned income, while paragraph (b) deals with unearned income. Amendment 29 would insert a new category of income; that is, unearned income which is to be treated as earned income. It seeks to replicate existing provisions within tax credit legislation whereby certain types of unearned income are treated in the same way as wages, including sick pay and maternity pay. We welcome the DWP briefing note on universal credit, which states that:

"The powers in the Bill permit us to make regulations to treat unearned income in the same way asearnings. These powers may be used, for example, in the case of Statutory Sick Pay"-

I have emphasised the word "may"-I hope that it is more of a "shall" than a "may". However, perhaps we could have some clarification on that. Statutory payments such as statutory sick pay and statutory maternity pay are paid through wages and it would therefore be difficult not to treat them as earnings. We welcome that indication, but again, some clarification of the word "may" would be a nice assurance.

However, although there is no policy reason why those who receive maternity allowance or ESA during the first six months of illness should be treated differently, we seek an assurance from the Minister that these benefits will be treated in the same way; that is, as earnings. By way of example, the Minister will know what I am referring to when I speak of two groups of people who get ESA in the first six months of sick leave rather than SSP. These two groups are those who have been working until they become ill, but are likely to receive ESA rather than SSP. One group is the self-employed, who will have to claim ESA as they have no entitlement to SSP, and the second group is that of people who work for a small employer and become so ill or disabled that it is clear they will be unable to return to their current job. People in this group often give in their notice because they feel it is unfair that their employer is unable to replace them while they are claiming SSP. In monetary terms the difference is fairly obvious. For example, in the case of a home owner during the first three months of sickness, under the current scheme they get in addition to their ESA of £65 a week a payment of up to £52 working tax credit provided that they were working for at least 30 hours a week. That gives them a total of £117.They would have to pay their mortgage out of this because they would not have help with the mortgage repayment.



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7 pm

Under universal credit, if the ESA is not treated as earnings, they would have just £65 a week out of which they would still have to pay the mortgage. However, if ESA is treated as earnings, a single person with no disregard would keep an extra £23 in addition to the ESA, which would at least give them £88, and if they qualified for a disability disregard, they would get a total of £130. It is an important difference, not least because people who suddenly have to stop work because of a stroke, accident or serious illness such as cancer face a sudden and rather dramatic drop in their earnings.

At the moment the money they get from tax credits for the first six months helps enormously in the adjustment to a drop in their income at the same time as they often have an increase in their outgoings. Despite that, even at the moment many are pulled into debt just when they are also trying to deal with the onset of an illness. Indeed, Citizens Advice found that illness is a very significant cause of debt in a quarter of the clients they advise on debt issues, with about one in 10 clients attending a county court hearing for a possession because of mortgage arrears reporting that illness was a major factor in falling into those arrears. We know that not just the loss of income with a serious illness but all the extra travel to hospitals and taxis and all that goes with it can increase outgoings at that time, so it could be much worse under universal credit should ESA not be treated the same way as statutory sick pay.

The second group about whom we are seeking information from the Minister under this first amendment is mothers who will be receiving maternity allowance rather than statutory maternity pay. These are mostly women who have been working right up to when they go on to maternity leave but because they changed jobs about the time they became pregnant, they will be receiving maternity allowance rather than statutory maternity pay. At present they are eligible for working tax credit. Again, perhaps the Minister could clarify that maternity allowance will similarly be treated as earned income within universal credit.

The difference in monetary amounts is significant. At the moment a lone person on maternity leave with one child who had been working at least 30 hours a week would get £125 maternity allowance, £20 child benefit and £55 child tax credit, as well as up to £88 working tax credit. Even after paying rent of about £70, she would have about £218 left. However, under universal credit, if maternity allowance is not to be treated as earnings, she would have a personal allowance of £190 from which her maternity allowance would be subtracted pound for pound, so she would be left with about £140 after rent, which of course is below the poverty line.

However-I hope that we get this assurance-if maternity allowance is treated as earnings, the first £40 of her maternity allowance would be disregarded and she would keep £30 of the rest, leaving her £70 better off than in my earlier calculation. It would obviously be pretty unfair not to treat maternity allowance as earnings. There is no policy justification for any difference but clearly it is immensely important to women, particularly in the first year of their child's life. We are pleased that the DWP has indicated that

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statutory payments may be treated as earnings-I hope they will be treated as earnings-but we would like some reassurance that when the person is getting maternity allowance or ESA instead these will similarly be treated as earnings.

Amendment 30 in the same group requests that the Secretary of State conducts,

to conclude after one year and to be published. The taper is a key element of the new universal credit. One part of the whole edifice architecture is obviously bringing in-work and out-of-work benefits together in one system. But moving from a cliff edge to a taper is also intrinsic to making work pay in that people can keep a significant proportion of any increased earnings. That objective is shared by the Opposition. However, everyone, not least the Minister, knows that the original taper as envisaged by the Centre for Social Justice in its report on dynamic benefits was 55 per cent.

The Bill does not set a taper rate but the White Paper, Universal Credit: welfare that works, suggests that the taper rate will be 65 per cent, which is a big difference from 55 per cent. The Government describe this as the most generous taper affordable at present. But the Minister will acknowledge that the 65 per cent taper will leave some families worse off than now, with work incentives less under universal credit than under today's system. It would take a more generous taper to increase work incentives and to help tackle child poverty by boosting household income. Save the Children has shown that a lone parent with two children working full time would be £25 a week better off under a 55 per cent rather than a 65 per cent taper.

Our request to the Government is twofold. First, they should clarify the intended taper rate. Secondly, under this amendment, they should commit to reviewing the taper rate annually with the aim of moving to the recommended 55 per cent as soon as possible and allowed by HMT. We accept that at present the 55 per cent would cost £2.8 billion. Will the Minister set out the conditions under which the Government would move towards the other taper and indicate whether it is proposed to move incrementally towards it?

I recognise that the Government will want to review the effect of the 65 per cent rate on incentivising work and how it impacts on the behaviour of claimants. They would not want the whole edifice being created to be put in jeopardy by an ineffective rate. We therefore ask the Minister to commit to an annual review of the taper with a view to introducing the more generous rate of 55 per cent to ensure that work pays for all. In particular, we would ask that any such annual review pays particular attention to the needs and aspirations of second earners, given that nearly a million will face reduced incentives to work compared with the present system. Furthermore, it would be useful if the Minister would set out the economic and financial conditions required to achieve a 55 per cent taper. I beg to move.

Lord Freud: My Lords, Amendment 29 specifies that deductions from the claimant's maximum amount of universal credit should include an amount in respect of prescribed types of unearned income calculated in the same way as the deductions made in respect of

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earnings. As drafted, Clause 8 allows for a reduction in respect of unearned income to be calculated "in the prescribed manner". The Bill therefore already allows for the manner of such reductions to be specified in regulations. This could include, where appropriate, the same calculation as for earnings.

As we set out in the White Paper, claimants will have their universal credit withdrawn according to a single taper rate after appropriate disregards. The latest assumptions on the earnings disregard have been set out in a new policy briefing note which was published today. Further analysis is provided in an updated version of the impact assessment for universal credit, which was published not very soon, but this afternoon.

With regard to income other than earnings, we have today released a new policy briefing note which confirms that statutory sick pay and statutory maternity, paternity and adoption pay will be treated as earnings. We do not intend to treat either ESA-or ESA equivalent-or maternity allowance as earnings. They are not treated as earnings in the current system; they are benefits and are treated as such. Nor do we propose to alter the current treatment of maternity allowance in the benefits system, where it is taken into account in full. This is because maternity allowance is one of a number of benefits which exist to replace income for people who are out of work. It therefore addresses the same need as universal credit for mothers who cannot work because they are giving birth to their children. We do not believe it is right for the Government to pay twice to meet the same need.

The income briefing note also explains our wider approach. In general, where a claimant has income at their disposal to meet their living costs, such as spousal maintenance or payouts from an occupational pension, these payments will be taken fully into account. However, we need to make exceptions to this general rule while ensuring that the system is kept as simple as possible. We will therefore disregard certain income types in full where they are paid due to additional costs or expenses that a claimant has. This would apply to additional payments due to being disabled, such as DLA or various local authority payments, or for looking after children, including child benefit and fostering allowances. We will also disregard in full certain payments which would be disproportionately costly to take into account. These will include the value of payments in kind or charitable payments.

I turn now to the proposed subsections in Amendment 30 which would require the Secretary of State to carry out and publish a review of the impact of a taper rate on universal credit claimants and their work incentives one year after the Act comes into force. As the revised impact assessment sets out, we expect the single taper together with the earnings disregards to improve work incentives significantly. With regard to the participation tax rate, the number of households who lose between 70 per cent and all their earnings through taxation and benefit withdrawal on moving into 10 hours of work will fall by 1.2 million under universal credit. Under the current system, around half a million individuals in low-paid work would lose more than 80 per cent of an increase in their earnings because of higher tax or

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withdrawn benefits. Virtually no households would lose 80 per cent under universal credit. On reasonable assumptions, the combined impact of take-up and entitlements will lift around 900,000 individuals out of poverty, including more than 350,000 children and 550,000 working-age adults.

These are significant outcomes and we will be monitoring and evaluating universal credit to confirm that they are achieved. However, this is an ongoing process and we expect that it will take longer than a year to develop a sufficient body of evidence on which to draw firm conclusions. As a result, we do not think it appropriate-

Baroness Sherlock: I thank the Minister. I am trying to look through the revised impact assessment, as I am sure will other noble Lords. I hope he has had the opportunity to read it before I have; I would be very disappointed if he had not. I wonder, therefore, if he would give us the benefit of that experience. Regarding the figure he has just cited of 200,000 children being lifted out of poverty by entitlement alone-and I see he has had to resort to modelling take-up which he has always previously refused to do on the grounds that it was not necessary-could he remind us what the previous estimate was of the number of children being lifted out of poverty?

Lord Freud: Yes, I can help noble Lords. There is a small decline for adults in this impact assessment compared with the last one. It is down from 600,000 to 550,000. However, the figure for children is unchanged at 350,000.

Baroness Sherlock: Is it unchanged?

7.15 pm

Lord Freud: Yes, for children lifted out of poverty, the figure 350,000 is unchanged. I am sorry; I can only tell noble Lords what is in the document, which I confirm that I did read over the weekend. Let me nail down the reason why I do not want a formal annual review process. I do not think that that is the right way to go when we have something as sophisticated as the universal credit, given the impact of the different delivery mechanisms, taper rates, disregards and conditionality. I will be talking to the Committee quite soon about how we could assess the system most effectively. I accept assessment and regular assessment, and I am looking for support from this Committee in that process.

Baroness Sherlock: I thank the Minister. I wanted to phrase my question more precisely because I think I may have confused him. The improvised impact assessment says on page 18 that changes in modelled entitlements will lift approximately 200,000 children out of poverty. The figure of 350,000 children that he quoted included take-up modelling. My understanding is that previously he has given us figures that did not include take-up modelling. I am trying to contrast the current steady state figure without any assumed change in take-up compared to the previous steady state figure.



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Lord Freud: I can absolutely confirm that the figures included take-up and are the same figures, so there is no change there.

Baroness Sherlock: I am so sorry. What was the previous figure, not including take-up modelling?

Lord Freud: They are exactly the same-200,000 and 400,000 adults. Those figures have not changed. Let me come back to the issue raised by the noble Baroness, Lady Hayter, on the target rate of the taper. I do not think it is right to have a target rate of what the optimum figure is, and I will not talk about the iron triangle today. I will spare the Committee. A lot of factors are involved in what the optimum rate will be. We do not know, so it would be foolish to set a target, whether it is 55 or 65 per cent. If noble Lords want my opinion, I think 65 per cent is too high and a future Government-when they have some money-would be smart to lower it. But by then I would hope that we would know exactly what the optimum figures were. When we know that, a smart Government would move to it. It would be wrong to set a target when we do not know what the optimum figure is. I agree that we need to be very sophisticated in our understanding of how people behave and the impacts of universal credit. I take on board the spirit of this amendment in the sense that we do need to assess it. I do not think this is the right way and I hope to be able to discuss with this Committee better ways of assessing it. I am hoping for some real enthusiasm behind those ways as well.

I hope that these answers have helped to clarify our intentions in these areas. They are really important areas, and I urge noble Lords not to press their amendments.

Lord Skelmersdale: My Lords, my noble friend will no doubt remember that many years ago I was the Minister for War Pensions in the days when war pensions were looked after by the then Department of Personal Health and Social Security, and then Social Security, since when they have been transferred to the MoD. Many local authorities provide a war pensioner's discount on housing benefit. I wonder whether this will be added to his list of discounts, because he did not mention it.

Lord Freud: I did not mention it for a very good reason. I am currently consulting across government on how best to recognise war pensions and other payments to veterans, war widows and dependants. The reason this is not straightforward is because the practice across all the different benefits varies wildly. When you create one single clean system, you have to go nap on one approach. What I am looking at doing is getting the right approach which recognises that someone in receipt of a war pension is owed an extra reward for that experience. We have to work out the optimum way of doing that. As I say, I am consulting on that.

Lord Skelmersdale: My Lords, I am very grateful.



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Lord Newton of Braintree: Before my noble friend sits down, since this seems to be the time for Tory interventions, and his remarks just now seemed to lead straight into this one, if variation between local authorities in what they do in respect of Armed Forces pensions is a problem in the way that he described, although we are all no doubt very supportive, what will happen if we have 400 different council tax rebate social security systems all varying wildly between 400 local authorities? I have a lot of sympathy with his line of argument. He may even be sad to know-I hope that he will be pleased to know this-that I think he is right to resist these amendments. He is right to put the emphasis on assessing what happens once all this is in place. However, we will need to take into account the effect of what is happening as regards council tax benefit as well as all the other things.

Lord Freud: My Lords, I will just have to take that point on board. After our previous session, I know that-

Lord Newton of Braintree: It is all right; I am not going to say any more.

Baroness Hollis of Heigham: I think that "um" would be a very good response from the Minister.

Baroness Hayter of Kentish Town: Some of my comments will not be appreciated but I thank the Minister for his response. Clearly, I have not received the same response as did my noble friend Lady Lister. I will take it back and think about it. She does not know when she is ahead. However, I am afraid that I have to express some regret. A lot of us have done a lot of work in preparing for the Bill although I am sure that we have done much less than the Minister. I blame my noble friend Lady Sherlock in that when I asked her what I should do she advised me to read everything that was said in the Commons. I thank her for that. What I found again and again were promises from Ministers in the other House that by the time the Bill reached Committee stage there the relevant information would be available. Again and again I am afraid I read that our friends in the other place found that that was not the case. They nevertheless were given absolute assurances that the relevant information would be available before the Bill reached Committee stage in this place. To have something published today concerning a debate that is taking place today is simply not good enough. We cannot work that way; "before" ought to mean before. Anything that is relevant to what we are talking about should be with us in time to enable us to read it and think about it.

I welcome the remarks about our being involved in the debates about how this process is going to work. I think that those remarks were probably genuine. However, that means that we have to have the relevant information

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available, especially as we are trying to discuss the Bill without a wonderful array of staff to help us.

I also regret the remarks about ESA, maternity allowance and earnings. The women who will be getting this who have been in work may simply not qualify for a statutory payment because they have changed employers. However, they could well have been working full time before that. In that sense it is not a benefit but something that they earned and are entitled to. Therefore, to treat it as unearned income-as if a sugar daddy had given it to them-would not be the right approach. It has been earned, albeit in a different way.

Similarly, the Minister did not respond to the question of whether ESA affected the self-employed. They are another group of people who have paid contributions into a system. If they then discover that what they get when they are possibly very seriously ill with cancer is seen not as something that they have earned but something from a very kindly Government, that will not be the right way to ensure that people see the system as enabling them to get something for what they have put in, which is what many of us want. I am sorry about that and I hope that, even if the Minister does not respond orally now, he will think about those groups of people, and in particular about women whose circumstances may have changed and who may have moved to a better job. On the whole it is young women who get pregnant. They may be moving up in a career and may have moved to a different employer and therefore may not qualify.

I have two further brief points. We are obviously delighted about any monitoring and assessment. If there is to be no formal review, I will have to accept that that is the best way of doing it. Nevertheless, it would be very nice if the Minister or his successor will bring those reports to the House, where they can be debated in the same way as we are able to now.

Finally, I accept that the Minister may not want to set a target rate for a taper. He said that perhaps 65 per cent was too high but that a future Government could perhaps do something about it. I look forward to sitting next to my noble friend Lord McKenzie when he is the Minister in a future Government-

Lord McKenzie of Luton: Do not wish that on me.

Baroness Hayter of Kentish Town: -and can announce a different taper rate. With those comments, I beg leave to withdraw the amendment.

Amendment 29 withdrawn.

Amendment 30 not moved.

Lord De Mauley: I suggest that this would be a convenient moment to adjourn the Committee until Thursday at 2 pm.

Committee adjourned at 7.26 pm.


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