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Grand Committee

Monday, 15 October 2012.

Arrangement of Business


3.30 pm

The Deputy Chairman of Committees (Baroness Gibson of Market Rasen): My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes.

Housing Benefit (Amendment) Regulations 2012

Copy of the SICopy of the Report

Considered in Grand Committee

3.30 pm

Moved by Lord Freud

That the Committee do report to the House that it has considered the Housing Benefit (Amendment) Regulations 2012.

Relevant documents: 6th Report from the Joint Committee on Statutory Instruments, 7th Report from the Secondary Legislation Scrutiny Committee.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, these regulations introduce the underoccupancy reductions for working-age social sector tenants. They also support the implementation of the annual CPI uprating of local housing allowance. The regulations are regarded as being compatible with rights under the European Convention on Human Rights. This policy was debated at length during the passage of the Welfare Reform Act. On top of that, many noble Lords came to the briefing session that I ran for MPs and Peers before the summer Recess. I am grateful for their input. I do not intend to go over old ground. There is nothing new in the regulations that we did not debate during the passage of the Act. The purpose of today is to look in detail at the working of the regulations.

As I have said, there are two main purposes to the regulations. First, they make two changes to support implementation of the measure to uprate the local housing allowance by CPI from April 2013. The current provision to review existing LHA cases on the anniversary date of the claim will be abolished from January 2013. Instead, all claims will be reviewed annually on 1 April when the new LHA rates are set. This brings LHA in line with annual changes to other benefits. There will also be provision to review a case if the rent changes throughout the year, so that tenants will not have to wait until the annual review date.

Secondly, the regulations introduce restrictions to housing benefit for working-age claimants who are living in the social rented sector and occupying accommodation larger than their household size requires. The same size criteria that are applied to claimants living in the private rented sector will be used to determine

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whether accommodation is being underoccupied. These changes will result in a 14% reduction to housing benefit for those underoccupying by one bedroom and a 25% reduction for those underoccupying by two bedrooms or more. The average reduction in housing benefit will be £14 per week for those affected.

The reasons for reform are clear. As noble Lords are aware, this is part of a package to contain housing benefit expenditure. Importantly, there are more than 250,000 households living in overcrowded accommodation in the social rented sector in England—they need more space. We cannot justify paying housing benefit to cover the cost of extra bedrooms while others struggle in cramped accommodation. People who rent from a registered social landlord or local authority have in large part had their rent paid in full through housing benefit. This is not the case for those who receive housing benefit for a privately rented property. They have to make hard decisions about what is affordable to them and where to live, as do people who pay their own rent in full. It is time for those in the social rented sector to make similar choices. Some tenants may look to meet any shortfall in housing benefit by increasing their hours of work or taking in a lodger.

Crucially, this change will provide an impetus for landlords to manage their stock more effectively and help us address the real shortage of homes. There are approaching 1 million extra bedrooms in the social sector that are being paid for by housing benefit for working-age customers. This is indefensible. It is a waste of valuable housing stock. Interestingly, there is already evidence within the industry of a change in management of stock since the policy was announced. Seven local authorities and 11 housing associations in the West Midlands have come together as the West Midlands Making Best Use of Stock partnership and agreed to pool at least 150,000 homes to allow tenants easy access to properties across the region. The partnership hopes that this will enable people to find a house with the exact number of bedrooms that they need in order to avoid underoccupation.

Landlords across Merseyside have also developed a region-wide home swap scheme in response to the size criteria. Twenty housing associations and five councils are taking part; they own a total of 107,000 homes between them. Of these homes, 2,000 have been identified as underoccupied and they believe that another 5,200 could be underoccupied.

We expect to see positive behavioural changes among housing benefit tenants in the private rented sector, following our earlier reforms. Some claimants have said that they will look for a job to make up any difference between their rent and housing benefit and others will look for more affordable tenancies. This supports our view that the changes are both proportionate and measured.

During the debates on the Welfare Reform Act, I made a number of commitments to noble Lords and I will take a moment to update you on these issues. I know that some are concerned because the regulations do not define what constitutes a bedroom, including the room size. However, in practice, others take a different view. After discussions with the National

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Housing Federation, the Riverside Housing Association and others, we have concluded that most welcome the flexibility that comes with not including in the regulations a definition of what constitutes a bedroom. Some landlords made it clear that defining this in legislation would introduce a system that might involve them having to measure every room. So we are leaving it to landlords to specify the size of property, as they are best placed to do that. We expect the information that they provide to be reflected in the level of rent charged and to match what is agreed in the tenancy agreement.

In previous debates I said that we would think about costs to landlords as part of our engagement with other departments. We are working through the financial impacts on local authorities with the Department for Communities and Local Government as part of the new burdens protocol. That department has also funded the Chartered Institute of Housing to produce guidance for landlords. Making it Fitwas published in May and included information on how to model and assess any risk to rental income. My department has met local authorities and advice organisations during the development of this policy. We have also produced comprehensive guidance to help them prepare for the changes in April next year. This includes a toolkit with model letters, leaflets and posters designed to heighten awareness among claimants.

On the next issue, we are adding £30 million to the discretionary housing payments fund from 2013-14. This is aimed at helping claimants living in significantly adapted accommodation and foster carers. I said that I would keep a watchful eye on this. We are currently talking to local authorities and are considering carefully how best to allocate this money. A decision will be made later in the year. I will also keep the discretionary housing payments funding under review.

There has been much debate over whether there should be specific exemptions from the underoccupation reductions for different groups. A presiding principle in the development of this policy has been simplification. For a policy to be administered easily and simply there must be few exceptions.

I have heard concerns that we are relying too heavily on the DHP fund and that there is not enough in the fund to help all those who will be affected. But we do not expect DHPs to be available to everyone who sees a reduction in their housing benefit due to underoccupation. The additional £30 million is targeted at those in adapted accommodation and foster carers. We have added a realistic sum based on what we can afford.

Finally, I should like to confirm that as far as the research timescales are concerned, the monitoring and evaluation will be for two years from April 2013 to March 2015. Initial findings will be available in 2014 and the final report in late 2015. We hope to start the formal commissioning process in the next month or so. We currently envisage that the evaluation will include small-scale primary research with a range of social landlords in local authorities across England,

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Scotland and Wales. Different types of authority, including a range of urban, rural, county and district local authorities, will be included. These will be selected to cover a range of different housing market demands so that we can explore the effects of the size criteria effectively.

Lord McKenzie of Luton: My Lords, I thank the Minister for his introduction to these regulations, which as he has explained cover two main areas: the introduction of size criteria into the social rented sector and the process for uprating the local housing allowance by CPI. I should say at the start that we oppose the regulations, particularly those related to underoccupation. The introduction of the size criteria— I think that we should adopt the Lord Best terminology and call them the bedroom tax—via the Welfare Reform Bill was hotly contested and rightly the subject of government defeats in your Lordships’ House. As noble Lords will recall, the hammer of financial privilege was ultimately deployed by the Government to get their way on the bedroom tax, and a £13 million top-up to the discretionary housing budget paid for by increased pain on the bedroom tax does not adequately address the strong reservations that are being expressed. Nor does it compensate for the misery that these regulations will bring to potentially hundreds of thousands of households. As the Minister has explained, the impact assessments make it clear that the regulations could affect 660,000 housing benefit claimants living in the social rented sector. They could mean an average loss of housing benefit of £14 per week, which is £700 a year.

Of course underoccupation in the social rented sector should be tackled, and many councils have a variety of schemes to do this. We would certainly support the arrangements and partnerships referred to by the noble Lord in presenting the regulations, but seeking to tackle it by curtailing housing benefit, as these regulations provide, is simply not acceptable. Indeed, it does not address the situation where under-occupation as defined is most prevalent—among older tenants. One of our objections to this policy is the lack of practical alternatives that tenants face. The uprated impact assessments make it clear that there is generally a surplus of three-bedroom properties and a lack of one-bedroom accommodation, so in many areas there are simply insufficient smaller properties for tenants to move into. I would also ask the Minister how far the Government think it reasonable for someone to move and thus uproot their family from existing networks of support—100 miles, 200 miles or perhaps 300 miles. If someone has to leave a job to move to a smaller property, will that be treated as good reason for the purposes of a claim for JSA, and does the Minister have any data on the average cost of moving home?

How practical does the Minister consider some of the various options that are laid out for tenants to consider, such as making up a shortfall from income? What other income does the Minister have in mind which is not taken into account in a housing benefit calculation in the first place, and which would of course gradually have a 65% taper in any event? Does the Minister specifically include disability benefits in this consideration? If it is savings, perhaps the Minister

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can tell us what the average working-age household savings are and how many weeks’ shortfall in housing benefit at £14 a week they would cover? It is suggested that moving into work or increasing working hours would be a solution. So far as moving into work is concerned, what happens if there is no work, and why does the Minister consider that the incentives to come in with universal credit are insufficient of themselves to encourage people into work? For how many households does the application of the WCA determine that somebody is not fit for work?

3.45 pm

As far as work and additional hours are concerned, is the Minister saying that it is quite okay to go beyond what is set down in, say, a jobseeker’s agreement or what its alternative will be in the new world of universal credit? If somebody was underoccupying, would that be the Government’s expectation? Letting a spare room to a lodger may simply not be a practical option. The configuration of the property, as well as the family circumstances, may not make it a serious option. Can the Minister confirm a point that I think he raised in one of his presentations that the income of a lodger would be disregarded in these calculations?

Of course—the Minister touched on this—the regulations do not reflect the size of the bedroom in assessing underoccupation. I understand the point about flexibility, so that the landlord determines whether it is a two or three-bedroom property for the purposes of letting, but once it is determined that a room is a bedroom then—however small it is—it will be deemed sufficient potentially for up to two 15 year-olds. That makes no distinction between larger and smaller bedrooms. As we discussed extensively during the passage of the Welfare Reform Act, the rules make no allowance for the space that young people need, for example for their homework.

In this regard, can the Minister explain how the system will work? If there is no underoccupancy and a young person then leaves home to go to university and returns during holidays, who has the reporting obligation about the changed circumstances? Does it matter that the initial leaving of the home was always recognised as being short-term? Will each departure and return require a revised housing benefit assessment? What about somebody who is admitted to hospital for an extended period? What adjustments will ensue in respect of that? So far as fostering arrangements are concerned, can the Minister again confirm that income from fostering is not to be taken into account in determining the level of housing benefit?

I am sure that the noble Lord, Lord Freud, will be aware of the briefing circulated in advance of this Session concerning the dramatic consequences that these regulations will have for disabled people, especially given the disproportionate effect that they are recognised to have on disabled people in the DWP’s own equality impact assessment. It is accepted that 420,000 of the 660,000 households affected by the size criteria contain a family member with a disability. On what basis do the Government consider the addition of a £30 million a year discretionary housing payments pot to be sufficient to address the needs of a disabled tenant? Indeed,

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there are more extensive challenges contained in the submission. Is the Minister in a position to deal with each of them?

When considering these issues, what assessment have the Government made of the overall changes that households face at the current time? In particular, we will be discussing just tomorrow the restrictions on council tax benefit which councils will be forced to introduce because of government cutbacks. There are of course others as well. To what extent is that looked at overall in assessing whether people can afford the consequences of these regulations?

At the end of the day, what is the Government’s advice when someone on, say, JSA is, by the Government’s criteria, underoccupying because of their historical position, cannot access employment, has no other income and has exhausted their savings, there are no smaller properties readily available to them and they could not afford to move if there were, and they are nervous about the prospect of taking in a lodger? How can they afford £14 a week out of their meagre benefit? What advice will the Government give to people who find themselves in that situation, as many thousands will? It does not seem that RSLs reducing their rents will eliminate the problem. It reduces the gross but does not affect the percentage reduction that will be made.

Of course, part of the problem that we face is the lack of housing. Social housebuilding has collapsed under this Government. There has been a disastrous 97% fall in new social housing starts and a 68% reduction in affordable housing in the past financial year. This was inevitably triggered by a £4 billion cut in the affordable housing budget. Clearly, the Government seek to place greater emphasis on the private rented sector as though it were in all respects the equivalent of the social housing sector. Can the Minister tell us the differences in security of tenure that generally exist between the two, even after the Localism Act? The Government of course know full well that they have set their face against further regulation of the private rented sector.

We accept provisions relating to the local housing allowance to be largely consequential on the earlier order that made the change to uprate by CPI. We then expressed our concerns about that and continue to do so. These regulations are focused on the narrower issue of the annual uprating, but inevitably are at the start of a process in which there is a divergence between levels of support and actual rents payable. The reality is that implementation of these regulations will create tremendous hardships for thousands of our fellow citizens, and the Government know it. It is a callous piece of public policy.

Lord Kirkwood of Kirkhope: My Lords, perhaps I may make a brief intervention at this stage. It is right not to dredge back over the painful territory of the policy intent, because we discussed it at great length in another context earlier in the year. We should use our time this afternoon to look at some of the detailed implementation questions that arise from the policy. Actually, we should be thinking about getting a housing policy for the United Kingdom that is worthy of the name when trying to sort some of this out.

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People have been asking me some of the practical questions about this and I just do not know the answers. I am nervous that we are getting towards a single implementation date, 1 April 2013, when there will remain a great deal of uncertainty on the back of the substantial change. If people get substantial change and are not prepared for it, they are even more badly affected by it. We must avoid that at all stages, if we can.

Has the department any confidence in working with local authorities and local housing associations? I was interested to hear the Minister talk about the work done in Liverpool and the Midlands on the home swap direct scheme. That is entirely healthy and welcome. However, if we had taken this at a slower pace and worked with local authorities and local housing associations across the length and breadth of the United Kingdom, a lot of that would have been in place before 1 April. I have no confidence, even if everyone works hard—and I am sure that they are working hard—that we will get proper home swap direct-type arrangements in place across the United Kingdom.

Are there sufficient co-ordination mechanisms in place between the DWP and the other constituent nations of the United Kingdom—Scotland, Wales and Northern Ireland? Presumably, they are making their own arrangements in their own ways. Is the department confident that there is a proper exchange of information and swap of best practice, and that the circumstances north of the border, and in Wales and Northern Ireland, will be as fit for purpose as they can be, come 1 April next year? That is a very important question.

Discretionary housing payment distribution is an important element of that. I understand the Minister to have just said that decisions will be taken later about how it is to be rolled out. However, I say to him that only last week someone in a local authority tenancy came to me. He is in a two-bedroom property, had some adaptations made to the premises and signed a letter of undertaking to the local authority to say that he would stay in that property for a one-year or two-year period. Therefore, he is locked into that tenancy and cannot move. He was prepared in principle to consider moving but he is now caught both ways.

That is just one example of, I am sure, many detailed questions that are arising which would have been better addressed if we had had a more measured transitional phase in the policy’s implementation. Following our important debates on the Bill earlier in the year—it is now an Act—does the department have any further research on the availability of single and two-bedroom properties? Is the map any clearer as regards where the accessibility lies so that people can make a decision about whether there are appropriate smaller properties into which to downsize? It would be reassuring to know that some work had been done and that people were being helped to understand where to start looking for some of these properties.

I concur with what the noble Lord, Lord McKenzie, said about the disability issue. When looking at the impact assessment and the briefing that we received

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last week, I missed the significance of that. I am not a disability expert; a lot of people know a lot more than I do about this technical and politically very important problem. I was taken aback by the extent to which the client group will be affected by this policy change. I did not know that. I wish that I had known it during the passage of the Bill.

Baroness Hollis of Heigham: The figure is two-thirds.

Lord Kirkwood of Kirkhope: Yes, it is two-thirds. I would not have guessed that. That is new and it is deeply concerning. I hope that the Minister will help us to understand what is being done about that.

During the passage of the Bill, the noble Baroness, Lady Hollis, kept referring to rurality. Another point that was driven home to me over the summer, coming from south-east Scotland, is that people are panicking about where they should begin to look for appropriately sized accommodation if they are to avoid the penalties that these policy changes introduce. There are no real alternatives in many cases, which is a problem.

A lot of us are relying heavily on the review. I was reassured that the Minister committed himself to conduct a proper review working with the noble Lord, Lord Best. I think that he made that commitment on his own initiative. Therefore, we are entitled to be confident about the review. However, if the review shows that the policy intent has not been delivered in some of these important areas, which I am sure are causing concern to other Members of the Committee as well as to the noble Lord, Lord McKenzie, and me, I would like him to reassure me that action will follow as a result of the review, so that this is not an academic piece of work that says, “On the one hand or on the other hand”, but will say, “Actually, we did not think that would happen. The culture has not changed in the way that we expected it would and therefore we are going to do something different and perhaps even change the policy”.

Of course, housing benefit needs to be constrained; it is a very big number and it is getting bigger. However, I think that we are grabbing at this policy. Irrespective of whether you think that the policy is right or wrong, the process is being carried out far too fast. Doing it all on one day—1 April next year—is a very unsafe thing to do in my view. I hope that we get this right and that the review will lead to some amelioration of some of the problems that are bound to come out of the woodwork when these policy changes are implemented.

4 pm

Baroness Turner of Camden: My Lords, I support my noble friend’s analysis of these regulations. As the Minister said, we have already debated this issue in detail when we discussed the Welfare Reform Bill and many of us voiced our objections at that time. Nevertheless, I still oppose what is proposed in the regulations because it seems to me that, when they are implemented, very vulnerable people may be placed at an enormous disadvantage.

There are particular problems in certain areas. I am particularly concerned about the area of London in which I live. At one time there was a fair amount of

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reasonably priced property available in that area. However, that is no longer the case. As soon as a large house becomes available, developers move in and turn it into flats. Houses that once housed two or three families are now filled with masses of people living in the same block. It is all enormously charged for. A number of people are making an enormous amount of money. I am told that a small two-bedroom flat in the area in which I now live would cost £500 a week. When you remember that the median rate for employment in London is £26,000 a year, how do people on those rates afford that kind of rent?

I know that the regulations will not take account of the local rents only. On the other hand, the fact that these kinds of development are going on in large parts of London and people are making quite a lot of money out of them means that the amount of housing available at reasonable rents has decreased because the developers move in and make a lot of money. As a result, there is a shortage of the kind of housing that would normally be available for people on much lower incomes.

The problem is that people now in receipt of benefit may find that they are underoccupying—that they do not need two bedrooms and so on—and they may have to move. If people have to move, that is a great disadvantage for them. In particular, it is a disadvantage for disabled people, who usually have some support mechanisms in the area in which they live—they may belong to groups that look after their needs and so on. To have to move is a great disadvantage to them. It is a great disadvantage to them if they want to work, and some of them do want to work. The Government are already closing the Remploy factories in which some of them could work. If they have to move, there is nowhere for them to obtain suitable employment. That is a great disadvantage.

For all these reasons, I believe that the regulations before us this afternoon are to the disadvantage of numbers of people whom we ought to protect. My noble friend has already indicated that in some detail and I do not want to repeat it, but I emphasise that I am not at all happy about these regulations. I am not the only one—so are many people and so are the organisations particularly concerned with disabled people, which have already made representations to us on these grounds.

Lord Best: My Lords, the Minister is well aware of my disquiet, and I am unlikely to be satisfied in relation, in particular, to underoccupancy—the bedroom tax. I know that he has made some important efforts and I think that he is going to be able to be reassuring on one or two points that noble Lords have raised. I am sure that we will hear that full-time students will not have to lose their bedroom and regain it by a convoluted process while they are away at university. Also, I think that we now have a date when it will be the case that taking in a lodger will not mean that benefit will be cut by the amount received in rent, which will be helpful to some people. These measures are not going to change the world, but they are good things to do and I am grateful to the Minister for putting them in place. There may be more.

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I want to talk about discretionary housing payments, which are the way out when you can see that a situation is quite untenable and any reasonable person would say, “Of course, in that particular case, this whole business is a complete nonsense and we must allow those people to stay where they are”. I am now getting the kind of letters that hundreds of MPs are going to get when this really big change gradually dawns on the world outside. I shall read to the Committee from a letter and will give the kind of reply that I would like to be able to give and explain the difficulties I have in giving it.

There is a woman in a relatively rural area of Norfolk who lives with her husband. They are not of pension age. He is a bit disabled. She looks after him, and she also looks after her elderly mother in the village. She sees her mother in the morning, at lunchtime and in the evening. She does a great job with her 81 year-old mother. She is in a three-bedroom council house. They have been there for 23 years and have brought up their children, who have gone. She uses two bedrooms because she and her husband do not sleep in the same bedroom. She will be paying another £25 a week because she is deemed to have two empty bedrooms.

The council has said that it has some one-bedroom flats in the nearest town, which is 16 miles away, that it may be able to move her into, but not now because the one-bedroom flats in the town are rather precious. Later, it might be able to move her in, but in the mean time, she will have to stay where she is. She says, “I can’t afford the extra £25 a week bedroom tax. What am I to do?”. In my letter back to her, I should like to say that there are things called discretionary housing payments. I am hinting at it but what hope can one give to people in such circumstances? It would clearly be completely foolish to move her out, although she cannot afford to stay; she cannot afford the extra £25 a week. However, moving her 16 miles away would mean that her mother had to be looked after by social services at considerable cost and her husband will not be properly housed—it is a nonsense. I should like to be able to say that the local authority should have the opportunity, where anyone can see that it would be sensible, to fill that gap and pay the bedroom tax, enabling her to stay where she is.

We know about discretionary housing payments that take care of some of the local housing allowance and the private rented sector. We know about the sums that relate to the total benefit that people can get from the universal credit—the £500 limit. We know about these other aspects of using discretionary housing payments. However, I cannot find anywhere any money for discretionary housing payments to pay the bedroom tax, except in respect of two special categories. These are thoroughly commendable, although I was startled to hear that the money was taken from the rest of the bedroom tax payers.

There are two kinds of special case. One covers adapted properties that have been physically changed for the people who live there. It would be a nonsense to move them out because there is a spare bedroom. It would cost everyone an arm and a leg. The other exception is a case where there are foster children.

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They do not count as part of the family but, obviously, they must have a bedroom. There is £30 million a year, which will continue indefinitely, for those two exceptions. That is great but they are very restricted categories. My middle-aged couple in Norfolk would not fall into either group.

I am afraid that noble Lords and, in particular, Members of the other place will all get such e-mails and letters, so they should be prepared. I had another letter from someone with two daughters, one aged 11 and one aged 13. One daughter is severely disabled. She needs a very large bed and, therefore, her own bedroom. However, the two girls are expected to share because they are aged under 15 and are therefore underoccupying by having two bedrooms. That will cost the family £14 a week from their disability allowance. They do not have £14 a week; they have great difficulty in getting by on what they do have. Everyone says that they must stay where they are. This is where a discretionary housing payment could come in. However, as I read the numbers I can see nothing. What does the Member of Parliament say in replying to his constituent?

I hope that the Minister has up his sleeve the opportunity to put in place more discretionary housing payments to get us through what I suspect will be rather a large number of cases in which anyone would agree that it would be best to let people stay put. I do not think it requires more legislation. We will not get the results of the very important, thoroughgoing research—I have congratulated the Minister on it—until some way down the line. Then we will see how things are working out. If it is not already the case, I advise the Minister to talk to his Treasury colleagues and provide a bit more discretion for local authorities to pick up cases that otherwise will just be hopeless. I have no idea how we and the people concerned will be able to cope.

Baroness Hollis of Heigham: My Lords, I declare an interest as chair of Broadland Housing Association, which spans Norfolk as a major traditional housing association. I also congratulate the Minister. We appreciate the reviews that he is seeing through and respect his respect for the evidence. It is welcome to be working with a Minister who is evidence-based. We appreciate that and it should be recorded.

Despite what the Minister said, these regulations are not about overcrowding. The people who are overcrowded and the people who are underoccupying are two different populations and in two different sets of places—they do not match. If the Minister were really serious about the issue of overcrowding, he would actually be looking, as some of us have tried to do, at the underoccupation among pensioners who, of course, are the biggest source of underoccupation. Although I am not suggesting that we should do that, if the Minister were serious about this, he would not confine his efforts to families, many of whom have children.

Secondly, the regulations are not about treating social housing in the same way as private rented housing. This is the second line that the Minister has offered us. What we have learnt over the last six

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months is that, far from the local housing allowance pressing down private sector rents, which was the mythology offered to us throughout the past year, the reverse is happening. Private rents have soared because, as my noble friend said, no new housing is being built. Private renting is not becoming a transitional tenure but a longer-term tenure. Demand is going up as a result, as are rents, as will the housing benefit bill. So, far from this exercise pressing down housing benefit, I am confident that we will see housing benefit in the private sector rise, because there are not three housing markets in this country, there is one. As new building has stopped in the owner-occupation sector and the social rented sector, the pressure on the private rented sector will increase, rents will go up and, as a result, the housing benefit bill will rise.

So neither of these two things are at issue. This is not about matching underoccupation and overcrowding— it does not fit. The Minister knows the statistics— they do not fit. It is not about following the example of the private rented sector, where rents are soaring and HB bills are likely to go up.

Like others, I do not want to repeat the arguments aired at great length in Committee. I have not been persuaded by anything since that the Minister was correct in his analysis. As a chair of a housing association whose tenants will lose the best part of £1 million in forfeited benefit, I have some questions for the Minister. What advice will he give me, given that his colleagues in DCLG have ensured that, instead of having £42,000 on average for a grant for a new house, it is now down to £16,000? As we cannot build without a grant of a minimum of £26,000, we cannot build. For the first time in 40 years my housing association is not building any new property. Given that, we have no possibility at all of “balancing our stock” to build the new single-bedroom properties that are pivotal to this scheme. As a result, our tenants know that they are faced with only our existing stock and occasional re-lets.

Occasional re-lets, when they come up, if they are attractive and in the right places, are for the most part pursued by pensioners. However, in future, pensioners who would like to leave a three-bedroom house and move into a one-bedroom flat or bungalow, will not be able to access any re-lets in our villages. This is because people currently in two-bedroom properties who are in the client group affected by the benefit cuts will now have to move to any available one-bedroom property against their will. I have yet to discover how that in any way adds to the sum of human happiness.

Many of our tenants have functional illiteracy and may therefore be re-classed as vulnerable, with the result that we will enjoy their housing benefit direct. However others, such as couples with children, will find it hard to manage; they will have debts, the banks will lean on them, and although I am trying to get them into credit unions, that may not be possible as they do not operate throughout Norfolk. They may well run into arrears. What would he have us do? If we let the arrears run, that will affect the estate, other people will stop paying their rent, we will go into the red, our books will not balance and we will go into special measures. The alternative is to evict, but the

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local authority will hope that we do not, because those families will go into bed and breakfast accommodation. This may be 10 miles away, the children will have to leave their schools, the younger ones may be bed-wetting, they will all be crammed into one room, and the cost to the public purse will actually increase because the cost of a bed and breakfast will be something like £300 per week, as opposed to the rent for their current accommodation at about £70 or £80 per week. So we have made that family deeply unhappy, broken up the pattern of managing their lives and very fragile incomes, and put them into accommodation at greater cost to the public. However, as they are a family they are entitled to be rehoused, so the local authority will ask us whether we can help. We will reply that the only property we have available is the same three-bedroom accommodation from which they were evicted because they could not afford to pay for it.

4.15 pm

What would the Minister have us do? He will say, “Discretionary housing payments”. That is brilliant. I calculate that my local authority might get £200,000 in discretionary housing payments. It has something like 20,000 families in the area in social rented accommodation, half of whom may be pensioners and half of whom may be other tenants, and two-thirds of whom will be on HB, so we are talking about 6,000 tenants, of whom perhaps half—3,000—will be regarded as underoccupying. That money will stretch to one year’s worth of help for 250 people at £750 for the year— £15 on average—out of 3,000 or 4,000 people who are unable to manage their cuts because they cannot go anywhere else as there is no smaller stock for them to go to. What would the Minister have us do with that? What will he say to housing associations that do not handle the DHPs—they are handled by the local authorities—as regards the advice they should give to their local authorities? How will they prioritise who should be the lucky people who manage to remain in their accommodation because they are being subsidised by the local authority’s DHPs, and which families will have to lose their homes because the DHPs have run out by November, December or January? What would the Minister have us do? How would he handle this problem on the ground because I am bloody well going to have to and I do not like it one little bit?

My third question to the Minister is the following. We are being encouraged by the Government to build only so-called affordable homes. Indeed, they are the only ones that will get subsidy in future. My housing association’s homes are at 62% of market rent; that is the target rent set down by the Minister’s DCLG colleagues. Affordable rents would be 80%, which means that if we are to apply to pension funds to be able to build we will have to let at affordable rents. Do we then let at affordable rents to families who will knowingly be underoccupying but are currently in work and therefore able to pay the rent, knowing that if they lose their job they face eviction because, above all, they will not be able to face the gap between their HB and their affordable rent? What advice can the Minister give us on that situation? How paternalistic should we be, knowing the fragile state of their economies in many cases? I want the Minister to tell me what we

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do in these situations when we are dealing with families who may have to go into bed and breakfast accommodation, weeping children who have to leave their schools and mothers who do not know how to cope. What will we do about the pensioners who want to move but cannot and other families who are being forced to move when they do not want to do so because they can no longer manage on the sums of money? What will we do when the DHPs run out and, as a result, we send families round a circle of house, B and B and house, and still the problem remains because their HB does not cover the house into which they have been rehoused because there is no smaller accommodation for them to go to?

If the Minister were chairing my housing association, what advice would he give me? I can tell him that I have spent hours on this issue. I have set up a working party and had nine streams of sub-committees, including all the staff across Norfolk, trying to address the different issues associated with the provision of information to tenants, the financial inclusion of tenants, budget management for tenants, IT for tenants and all the rest of it to help them address these problems and, frankly, we are screwed. How would the Minister help us manage the problems of my tenants, some of whom are the most fragile and poorest in the community of Norfolk, and help them to cope with the changes that he will land on them as of next April?

Baroness Lister of Burtersett: I do not think that either the noble Lord, Lord Shipley, or I want to follow the very powerful case made by my noble friend Lady Hollis. We have rightly focused on the bedroom tax but first I want to refer to the CPI uprating, following a point that was raised with us by Crisis. During the passage of the Welfare Reform Bill the noble Lord, Lord Freud, said that,

“if local housing allowance rates are clearly out of step with rents, they can be reconsidered”.—[

Official Report

, 14/12/2011; col. 1323.]

That was a welcome statement. I understand that there have been discussions between the department and Crisis, and perhaps other groups, in which it has been suggested that in 2014-15 the Government intend to review the method of uprating used. It would be helpful if the Minister could tell us how this review will take place. Will it be a formal review? Will it be part of the more general review of what is happening to housing benefit? What sort of discrepancy between local housing allowance rates and local rent would be deemed out of step? It would be helpful if the Minister could give us that information.

I turn to the bedroom tax, about which much has already been said by noble Lords. Like the noble Lord, Lord Kirkwood, I had not quite taken on board the extent to which disabled people are disproportionately hit by this measure. In our general discussion, we perhaps lost sight of that at the time. My noble friend Lord McKenzie asked the question, which I hope the Minister can answer: are disabled people expected to use their disability benefits to meet any rent that will not be covered? The briefing we were sent talked about a judgment, Burnip, which I admit I had not heard of before. One of the judges made clear that we should not expect tenants to use disability benefits to meet part of their rent.

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The Minister started by saying that the regulations are compatible with convention rights but, as a member of the Joint Committee on Human Rights—I am now but was not then—I refer back to its report on the Welfare Reform Bill in which the committee raised concerns about whether there was a problem here for disabled people. The report said that if such tenants were forced to move into properties unsuited to their needs, this might risk breaching their Article 8 rights—respect for privacy or family life—and potentially be discriminatory. Since then, we have had the announcement, welcome as far as it went, of the discretionary housing payment. However, the noble Lord, Lord Best, has already raised major questions about that payment. During consideration of the Bill, I dubbed it the “loaves and fishes of income maintenance”. It feels as though these loaves and fishes are being stretched ever further, even if there is an extra £30 million there.

As the Secondary Legislation Scrutiny Committee points out, the money is not ring-fenced, and once again we cannot be absolutely sure that it is to be used for the purposes intended. The noble Lord, Lord Best, talked about how the money will be stretched and will help only those whose houses have been adapted, but there may be other disabled people for whom there may be good reasons for why they should not have to move, use other income, take a lodger or go into paid work. The situation is not terribly satisfactory.

The noble Lord, Lord Best, said that this money would last indefinitely. I had not realised that that was the case. It would be helpful if the Minister could confirm that this is an indefinite payment. Can he give a government commitment that that money will definitely be there for the current spending review period and that it will be at the very least inflation-proof, or go up in line with rents? Can he give that kind of assurance? I will be delighted if he can but there is a big question mark over the long-term viability of a policy based on a discretionary payment. Will the individual be able to receive it forever, or will they have to keep re-proving their deservingness in order to continue to receive it? All these questions remain unclear.

I do not think that the Minister will be able to put our minds at rest because of our strong case. We are all very unhappy about the regulations themselves but perhaps he can at least give some assurances that the discretionary housing payment will genuinely go some way to meeting the real problems raised by other noble Lords.

Lord Shipley: My Lords, I refer to the Secondary Legislation Scrutiny Committee’s comments at paragraph 13, in which it is pointed out, rightly, that the reduction will apply to,

“the total eligible rent for the dwelling, including any eligible service charges”.

Can the Minister confirm which service charge items will be eligible for universal credit? In consultation, these were different from those covered by the current housing benefit regulations, which provide a list of items that are not eligible. Will the revised regulations prescribe the range of eligible service charges and, in

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practice, reduce the numbers that may previously have existed? In particular, will the Minister clarify which service charges will be included in the definition of,

“services necessary to maintain the fabric of the accommodation”?

Specifically, will the maintenance of fire safety equipment, lifts, door entry schemes and other communal services be deemed necessary to maintain the fabric of the building and therefore be eligible?

Further, will the service charge currently associated with a furnished tenancy be eligible for housing benefit, as it is now? Finally, on concierge services, which include portering, security, caretaking, CCTV coverage and the cleaning of communal areas, will the service charges for these continue to be eligible? I hope they will because, if they become optional, many tenants will not be able to afford to pay and there will be reduced standards, impacting negatively on communal facilities and health and safety.

Baroness Grey-Thompson: My Lords, like other noble Lords, I am concerned about the potentially disproportionate effect these regulations could have on disabled people. It is my understanding that all disabled tenants other than those who need constant overnight care will lose a percentage of their rent if they have more bedrooms than they need. The DWP equality impact assessment, which was updated last June, clearly shows the disproportionate effect that the size criterion measure will have on disabled tenants. Based on the Equality Act 2010 definitions of disability, some 420,000 of the total 660,000 households affected contain a family member with a disability, which makes the housing benefit regulations very much a disability issue, and one that is of great concern to a huge number of people. There is the discretionary housing payments fund for 35,000 tenants with homes adapted for wheelchair access, but that is a small mitigation in terms of the 420,000 tenants who are potentially affected. I feel strongly that long-established definitions of disability do not depend merely on the presence of adaptations or on the outward appearance of a functional disability. I am very concerned that disabled people will struggle with these measures.

Lord Freud: My Lords, an enormous number of issues have been raised and I will do my best to deal with them. I know that this is an area of great concern to noble Lords. That was made clear during the process of what is now the Welfare Reform Act 2012, and I remind noble Lords that there were some government defeats on underoccupancy, which were reversed in the Commons. That is where we stand as the second Chamber when considering these regulations. However, as I say, I will do my best to answer the questions put to me as rapidly as I possibly can—in a fairly random order, if noble Lords will allow me.

I shall pick up some of the issues raised by the noble Lord, Lord McKenzie. Under the Localism Act 2011 there will be fewer tenancies for life, so both private sector and social sector tenants are less likely to have absolute security. On the assessment of the impact of the overall changes, noble Lords will be aware that we have produced impact assessments for each of them. It has been extraordinarily difficult to

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combine them because one is not sure on which basis assessments should be made, given all the other changes that are going on. However, people affected by more than one change have the DHP fund available to them. I should point out that when the fund is taken in its entirety, we are now looking at a very substantial amount of money. Next year, for instance, the full DHP pot will be running at £165 million, plus the localised social welfare fund will move over, which I think will be another £178 million. So a lot of money that is not ring-fenced for particular things is going to local authorities, so that they can look at the problems in their area to try to provide the appropriate support.

4.30 pm

On the point relating to children leaving home, the change must be notified. People who are in hospital will be treated as still occupying the building if the stay is expected to be less than 52 weeks. Income from fostering is ignored, as currently. We ignore disability benefits for housing benefit, and that will continue to happen. The noble Lord, Lord Kirkwood, queried the two-thirds figure. That has not changed in the impact assessment. I have one or two more points to make on that. As noble Lords will remember, the £30 million is divided so that £25 million is to cover people with significant adaptations. We estimate that there are around 35,000 claimants, particularly wheelchair users, who have accommodation adapted to their needs. That is what that £25 million is there to cover. The other £5 million is for foster carers.

The core question raised by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Hollis, was whether there is suitable accommodation. I know it is a concern. Clearly, it varies across the country. This is not about making people move into it. Many will prefer to stay. What will happen in practice is that there will be a very varied effect on individuals. One can tier up the problems and end up with someone in a very difficult position. We had some examples today. That is exactly where we would expect the DHP to come into effect. A lot of people will decide that they will have enough money or that they will be able to take in a lodger or take extra work. Those are the kind of decisions that we expect to happen in the marketplace. There will, of course, be a residue of bigger problems.

The noble Lord, Lord McKenzie, has a few times made the point that we have paid for the £30 million by increasing the rates. I want to put it on the record—I hope we will not return to this too often—that we had a range. We always announced a range, and we had not fixed an amount within that range. When we came to decide how best to structure this, it was very important to help people with adaptations, so we settled within the range that we had announced. It was not a change. We had not formed a single figure in order to move it. I know I sound like a politician now, but there we are.

My noble friend Lord Kirkwood asked about Scotland, Wales and Northern Ireland. The DCLG funded the Chartered Institute of Housing to develop the guidance for housing providers. It was promoted to all the devolved Administrations as it was in England.

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On another question from my noble friend, phasing would significantly reduce the savings here, and they would then have to be found from elsewhere. Trying to phase it for some people and not others raises an important issue of equity. In practice, we gave housing associations and local authorities a year to prepare. Indeed, as I have tried to indicate, there are strong signs of some substantial preparations going on.

On my noble friend’s concern about rural areas, that again comes down to the kind of choices that people will need to make. Clearly, in rural areas people will have to look at their lifestyles and what they can afford, as they do elsewhere.

Baroness Hollis of Heigham: That will not do.

Lord Freud: I could go on for longer about this. Rural areas will need to look hard at the options of adaptations to property, lodging, moving or paying for the extra room. One issue raised by the noble Baroness, Lady Hollis, is that this is not directed at pensioners who want to move down. The reason for that is the concern that it is pretty stressful for very old people to have these kinds of pressures on them. If we are to have this decision that we cannot afford to support people with extra bedrooms—they can of course have them, if they can find a way of paying for them—and have that mechanism happen to people who are still of working age and capable of making the adjustment, rather than to pensioners, then as time moves on you will move the cohort up into the pensioner group. That is what is happening with that particular issue. It is a timing issue.

On the sums and my noble friend’s question about what will be available, I will try to give a few figures for context. We expect probably around 400,000 underoccupiers to need the one-bedroom properties according to these size criteria. If we look at surveys that have been done—I am thinking particularly of the Housing Futures Network survey—around 25% of those people are likely to look for an actual move. In the previous financial year, there were about 100,000 new lettings of one-bedroom properties in the social rented sector in England and around 25,000 new dwellings completed.

Baroness Hollis of Heigham: And about double that on the waiting list.

Lord Freud: There is an implication in that: who takes priority for those new houses and then who do you take off the waiting list for the larger properties? There is then a kind of order of position that becomes somewhat more manageable. Do not forget some of the examples given, such as that there would be children in these rooms. The reality is that for the bulk of people affected by this, their children have left home. That is why they have too many bedrooms. I think the figure is—I am plucking a number from my memory—70% of the people affected by this. I will be hit hard by someone if I have the wrong figure and I will get the right one in a second but, from memory, 70% of these people do not have their children at home. That is obvious because of the underoccupancy effect.

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I responded to the question on DHP use from the noble Lord, Lord Best. We are not talking about a ring-fence system with the DHPs. When you have very hard cases, of the kind discussed this afternoon, local authorities can move in and help.

As to the total figure, I have already given that as £165 million for next year. That is made up of the baseline funding of £20 million, £40 million from the LHA reforms, £30 million from the social sector—under the size criteria that we are talking about—and £75 million from the benefit cap. These are the kind of figures for people who have multiple effects.

I must correct my earlier figure of 70%. My memory was just slightly faulty; the figure is actually 66%, not 70%. I apologise.

This is a good time to answer the question of the noble Lord, Lord Best, about making an assurance. Actually, it was not Lord Best. Who wanted that assurance?

Baroness Lister of Burtersett: It was me.

Lord Freud: It was the noble Baroness, Lady Lister, who wanted that assurance on the indefinite lasting of DHPs. I clearly cannot make any assurances through into the next spending review. To commit into the next spending review is, I suspect, the shortest way to get yourself fired that I know of, in any political party. However, when it comes to adaptations and foster children, the structure of this is not an eroding factor. It might erode, but only very slowly. Clearly, any Government would have to look very closely at how they maintained that type of support when they looked at the next spending review. So if that is some small reassurance, I leave it with the noble Baroness. I do not think I have got myself fired by saying that.

Baroness Lister of Burtersett: I certainly do not want to get the noble Lord fired, but will the department be doing all it can to ensure that that money is maintained into the next spending review period?

Lord Freud: We are doing a serious review, as the noble Lords, Lord Best and Lord McKenzie, and others have pointed out. We take reviews very seriously. They are public and they provide information to look at as we consider how we go forward. I certainly can say that the department and I take the information from these reviews very seriously. That is as far as I can go at the moment. The noble Baroness perhaps understands better now than when we were going through the Bill when I am making a move and when I am not.

Perhaps I may pick up on a point made by the noble Baroness, Lady Hollis, about overcrowding. Clearly the primary reason for these regulations, and we have made it absolutely clear, is that this is a huge Bill and we have to look at where we want to spend the money and how we make the half a billion pounds in savings. In other words, if we do not make savings here, where else do we make them?

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Baroness Hollis of Heigham: I understand the noble Lord’s dilemma about housing benefit, but the problem is caused because there is no capacity of demand to buy property and to fuel new building. As a result, the pressure is going on private rents, which as a result means the housing benefits bill will continue to go up, without even considering what is happening in the social housing sector. He will not succeed—he cannot succeed—in part because of the policies of his neighbouring government department.

4.45 pm

Lord Freud: I do not want to get into a huge debate about housing policy because it is a huge and complicated area. Clearly, we are dealing with counterfactuals. There are some signs of bearing down on rents. During the middle part of this year, rents were below the CPI increase. As the noble Baroness argues, we are probably fighting supply and demand pressure going the other way. Within that, there are some signs that we are bearing down. Clearly, the Government’s strategies on getting more housing, particularly build-to-let, in the private sector as well as social housing are important initiatives. We have 146 providers delivering 80,000 new homes for affordable rent with government funding of just under £1.8 billion. Over the 12 months to August, private rents went up by 2.9% on the LSL rental measure for England and Wales, which is not hugely out of line with the CPI.

Arrears are clearly a primary concern for housing associations. I am aware of that. It is about managing the different proportions. When you look at the pie chart of the number of tenants who are affected, housing associations will have to watch closely how a proportion of tenants are supported. From going around talking to housing associations, I know they are ramping up their support for those groups. One of the interesting things about the housing demonstration projects is how housing associations are saying, “We thought we knew our tenants and we are finding with these demonstration projects that we did not, but we are now establishing completely different relationships with them”. I am sure that the noble Baroness’s housing association knew its tenants much better than the average, but that is what I am hearing from the demonstration projects.

On the point made by the noble Baroness, Lady Lister, the scheme already recognises the need for an extra room where there is a need for an overnight carer in the private rented sector, and we have carried that over into this scheme.

On the point made by the noble Lord, Lord Shipley, the legislation sets out the types of eligible charges, and guidance will provide more detail. We expect the costs to be met broadly as now.

The noble Baroness, Lady Lister, made a point about human rights. We have DHPs to assist people to move, and local authorities must consider human rights and obligations when making decisions about these kinds of cases.

The noble Lord, Lord McKenzie, asked about households not fit for work, and I think I have dealt with that. The two-thirds figure has not changed, and 56% report a disability that leads to a significant

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difficulty with one or more areas of daily life. That does not necessarily mean that the daily lives of the two-thirds are affected by their disabilities. I have touched on the question put by the noble Lords about what people can do; there are four or five things that can be done.

One or two noble Lords asked about income from lodgers. The first £20 of weekly income is disregarded entirely, which will usually cover the amount of money in the reduction, and half of the remainder is taken into account. I have made sure that under universal credit, the entire amount is disregarded. That is to be introduced from next year. I was asked by the noble Lord, Lord McKenzie, about the average cost of moving home. DCLG estimates that it is about £500 per move. On questions about the CPI, again that is to keep the pressure on. We froze it a year ago so that we can make the standardised changes with regard to CPI in April 2013. I was asked how long that pressure is likely to last. We have made it absolutely clear that we need to keep it under review. People have made projections up to 2030, but we are in unusual times since earnings normally rise faster than inflation and thus drag up other factoring events. Usually one would expect to have to review the figures as those factors come through. I am not sure yet how we will do the review, so I cannot spell it out. However, as we get closer to the right period, we will look at exactly how it will be done. I repeat, we will take it seriously.

Baroness Lister of Burtersett: I am sorry to hold the noble Lord up. I understand if he is not yet able to say how the review is to be carried out, but when the department does know that, could he perhaps tell noble Lords?

Lord Freud: I have pleasure in giving a commitment that I will tell noble Lords exactly how we plan to do it when we know. I think I have covered all the issues that were raised—

Lord Kirkwood of Kirkhope: I apologise for interrupting the Minister’s progress. Is there a communications strategy that will roll out with the policy? Obviously, this will have to be delivered by housing associations and local authorities. Is the noble Lord confident that proper notice will be given to those who are affected so that a letter will not arrive in the letter box a fortnight before the policy crystallises?

Lord Freud: We are holding a big exercise with local authorities and housing associations and, indeed, the institute is doing a lot of work on this. All the materials are currently going to the relevant bodies and it is up to them to deliver it. They have DWP-branded material in the form of leaflets and so on, so the information is available and ready to go out. Clearly, a lot of effort is going into working out who will be affected and making sure that they get support. There are model letters and leaflets that make up a full toolkit.

I hope I have dealt with the issues. Again, I know full well that noble Lords do not like this policy. That view has been expressed in the Chamber twice and I remember that absolutely, as I suppose noble Lords

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do, too. There is history here. Our votes were overturned by the Commons, this came back and noble Lords tried again. In the end, after one iteration of it was stopped, I said that I would take following that up in terms of research very seriously, and I set that in train. I hope noble Lords will accept that, unpalatable as these measures are, we have found the best balanced way of reducing the housing bill, which is simply enormous now. No one has said to me, “There is another, easy half a billion to find in the housing bill this way”. This is the fairest way of doing it. It requires a response from local authorities, housing associations and tenants but one that, in the majority of cases, those groups will be able to make. There will be hard cases. Let us hope that we have put enough resource into looking after various hard cases. With that, I hope that on balance noble Lords can support these regulations—with reluctance. I commend them to the Committee.

Motion agreed.

Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 3) Regulations 2012

Copy of the SICopy of the Report

Considered in Grand Committee

4.58 pm

Moved by Lord Freud

That the Grand Committee do report to the House that it has considered the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 3) Regulations 2012.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I am pleased to introduce this instrument which was laid before the House on 2 July. I am satisfied that it is compatible with the European Convention on Human Rights.

Two weeks ago we celebrated a major milestone: the start of the rollout of the workplace pension reforms. These reforms are critical to allow people to start planning for their retirement. Your Lordships will no doubt have seen the, “I’m in!” campaign in the media to raise awareness about the reforms. By the time all employers are included, millions more people will be able to join the bosses by saying, “I’m in”, with more than 500,000 new savers in workplace pensions by Christmas. For many it will be the first time they have had the opportunity to save in a pension.

The instrument that we are to debate today is very technical and might seem to be a relatively insignificant part of the landscape. But for some of the largest employers in the country, who are at the front of the queue, these amendments will play a vital role so that they can use their existing high quality, career average pension schemes to meet their duties. Without this amendment, an oversight in the original regulation would prevent them doing so.

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The issue emerged earlier this year during the department’s engagement with employers as they prepared for the onset of the new duties. The problem lies in the way that the quality requirements for career average schemes interact with the scheme rules for some career average schemes. A key part of the quality requirement for career average schemes is that accrued benefits must be revalued. The policy intent is to ensure that individuals are given a measure of protection against the effect of inflation. It is important that benefits accruing in a career average scheme are revalued in service as well as in deferral.

The minimum level of revaluation required by Regulation 36 of the 2010 automatic enrolment regulations is a guaranteed annual increase by reference to the increase in the general level of prices. If the benefits are to be revalued only on the exercise of a discretionary power, the scheme may still qualify if the funding of the scheme assumes the minimum increase is to be made, and the funding is provided for in the scheme’s funding plan. This easement was made available only to schemes that revalue purely on a discretionary basis. Those that feature an element of guaranteed revaluation below the minimum, but which also have a discretionary power to revalue at the minimum rate, would not qualify.

This is the problem which puts the regulation at odds with the original policy intention of allowing schemes to qualify if they revalue on a discretionary basis provided the increase is properly funded. We consulted earlier this year on proposals to allow schemes which provide for a mix of guaranteed and discretionary increases to qualify. We also asked whether there were other aspects of this regulation that might inadvertently prevent perfectly good quality schemes qualifying. The objective is to give an appropriate degree of protection to members’ benefits against the effects of inflation and to ensure that the quality requirements are applied consistently across scheme types. At the same time, we want to allow flexibility on how these requirements are actually met. This will ensure that we do not impose any unnecessary and costly burdens.

We received a number of suggestions in this area, some of which we are considering further. One was very simple to agree to. Regulation 36 currently allows a scheme that revalues by reference to the increase in RPI to qualify only if it was in existence on 1 July 2012. We agreed with respondents who saw no reason to prevent a scheme that is set up after that date also qualifying if it chose to revalue by reference to RPI without the need for a CPI underpin in years when the CPI is higher than the RPI. So the draft before the Committee today also allows for revaluation by CPI or RPI, subject to the cap on required revaluation at 2.5%.

As I said earlier, this amendment is not the most attention-grabbing piece of legislation that we will make this year, but for some major employers getting ready for the workplace pension reform it may be one of the most important. I commend this instrument to the Committee.

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Lord McKenzie of Luton: My Lords, I thank the Minister for introducing this order. I doubt whether it will take us quite as long as the business we have just dealt with. Like the Minister, I am happy to celebrate the start of auto-enrolment, which is a very important development in the pension landscape. In that context, we accept and support the need for this change to the regulations. I am sorry that my noble friend Lady Drake is not able to be with us today. She is not well, but she lumbered me with some questions.

What happens if as a result of current considerations of CPI and RPI, the construction of CPI is amended to include housing costs, which could cause it to be higher, and the formula for calculating RPI, using geometric rather than the current arithmetic mean, could cause it to be lower? Is the Minister confident that revaluation by RPI is likely to be more generous in most years?

On my noble friend’s behalf I want to ask about the schemes that apply discretionary revaluation increases. Does this mean that under their statutory funding objective to secure sufficient and appropriate assets to cover their technical provisions, those provisions must include revaluation at a rate no less than the minimum set out in regulations? Further, what happens when such a scheme is in deficit? Must its schedule of contributions and recovery plan be based on assumptions that include the minimum revaluation rate?

My noble friend has asked a further series of questions. For those schemes which apply discretionary revaluation increases, who under this SI can continue to do so and remain qualifying schemes provided that the revaluation is funded for and included in the statement of funding principles? Will the provision for revaluation be required to be at least that necessary to meet the minimum rate for the revaluation requirement of CPI or 2.5%, whichever is the lower? Further, in the event of an employer ceasing to participate in a scheme that applies discretionary revaluation increases, will any Section 75 debt be calculated on the assumption that the minimum rate for revaluation will apply? Finally, will those schemes which revalue by reference to the increase in average earnings continue to be required to meet the minimum rate for the revaluation requirement of CPI or 2.5%, whichever is the lower?

If the noble Lord would prefer to write on any or all of these questions, that may help us all. Having said that, we are happy to support these regulations.

Lord Kirkwood of Kirkhope: My Lords, I want to add my support for these regulations. I have myself had one of the four or five questions from the noble Baroness, Lady Drake. It concerns the consultation that the Office for National Statistics is engaged in at the moment in terms of RPI versus CPI. That needs to be thought about quite carefully because it could have a dramatic impact on some of the scheme rules we are talking about and which these regulations cover. I want to put in a request that the department ensures that the ONS is careful about this issue and that people are made aware of the consultation it is currently engaged in.

There is one point I do not understand. I imagine that an average salary scheme must be a defined benefit scheme and therefore it will have a statement

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of funding principles and trustees. Given that, I do not understand why the easier fix for this was not to change the scheme rules in order to make them compliant. I cannot believe that trustees would want to do anything other than that. They may have a contest for the sponsor of the scheme in terms of getting the resources, but I cannot see how that would be a problem. My question is this: although I am in favour of them, why are these regulations necessary? Why can the trustees of the scheme not deal with it by making a small amendment to the funding rules in the statement of principles for their own individual salary schemes?

If it is easier to give answers to these rather more simple questions by letter, I am quite happy to receive one as well.

Lord Freud: My Lords, I think I will end up writing a letter, but I ought to try to answer the questions in general terms, thus saving a little effort in terms of letter writing. The first point made by the noble Lord, Lord McKenzie, concerned the potential changes to CPI and RPI. About a year ago we had the most glorious debate on this matter, for which I enjoyed researching probably more than any other topic. I think I am pretty comfortable in saying that the authorities are looking at these two measures and that there are likely to be some changes. RPI has had a very bad press lately, as some noble Lords who are aficionados will have noticed. If and when that change happens, we will have to take a decision, but it is pretty premature to take two hypotheticals and jump to a conclusion ahead of time. We will engage closely with the ONS to ensure that the potential impact on pension re-evaluation is fully considered.

On relying on trustees, my noble friend is absolutely right that there will be trustees here. This is just a technical change. The way it was drafted would have excluded these particular schemes, so that is the way that that has been addressed. This is moving into where schemes go into deficit and the question from the noble Lord, Lord McKenzie. They will be required to find funds for the minimum revaluation rate. Section 75 debt will continue to be calculated on the basis that the minimum revaluation rate will apply. The sums go on, even though the scheme has a problem which needs to catch up.

On the schemes that revalue benefits by reference to earnings, we are committed to considering further how that kind of revaluation could be allowed for. Historically, earnings have gone up faster than inflation so it is a lower risk, although that has not necessarily happened in recent years. On the question of whether the provision for discretionary revaluation would be required to be at least that necessary to meet the minimum rate—CPI, RPI or whatever is lower—the answer is yes. Regulation 36(3)(a) stipulates that a scheme with benefits to be revalued on the exercise of the discretionary power can be a qualifying scheme if,

“the funding of the scheme takes account of the exercise of the discretionary power and does so on the assumption that accrued benefits would be revalued at or above the minimum rate”.

That figure is CPI or RPI, whichever is the lower.

I may have answered all the questions without the need for a letter. That would be one of the miracles of

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our time. I will make sure and, to the extent that we have not absolutely locked this down, I will send a letter over because it is a very technical area.

Baroness Turner of Camden: I have a question. There has been a report in the newspapers recently that a number of small employers have no idea how to operate the new scheme. Of course, the problem is that if it is not operated, a lot of people will not get the choice of whether to go in, opt out or whatever. I am interested to know whether the Government are taking on board the problems with smaller employers who really do not understand what is actually involved in getting people into the automatic scheme.

Lord Freud: Yes, I can pick that up. Clearly, there is a staging going on. Smaller employers are towards the end of that, and are two or three years out from now. It would clearly be hugely counterproductive to send them an early letter which tells them that in two years’ time this or that will happen because they will tend not to look at it. It is really important in a communication exercise that we time it right. It is somewhat encouraging that quite a few knew that this was coming. A communication exercise is integral to us launching this properly. That is a key point.

To sum up, the point of this measure is to make sure that good-quality career-average pension schemes can be used for automatic enrolment. It allows flexibility without compromising individual protection and closes a particular gap in the legislation that we would not have wanted to see. On that basis, I commend the instrument to the Committee.

Motion agreed.

Child Support Maintenance Calculation Regulations 2012

Copy of the SICopy of the Report

Considered in Grand Committee

5.16 pm

Moved by Lord Freud

That the Grand Committee do report to the House that it has considered the Child Support Maintenance Calculation Regulations 2012.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I will also speak to the draft Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012. These two sets of regulations were laid before both Houses on 2 July 2012 under the powers contained in the Child Support Act 1991, as amended by the Child Maintenance and Other Payments Act 2008. It is a requirement that I confirm to the Grand Committee that these provisions contained in the two sets of regulations are compatible with the European Convention on Human Rights, and I am happy to do so.

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Getting the child maintenance system right is one of the most important matters that we face as parliamentarians, as parents and as a society. This House has always played a crucial role in national debates on the issue, and the considered views of Members of this House have consistently both informed government thinking and improved the legislation that underpins this area.

The two sets of regulations before us today are a key part of the Government’s child maintenance reform programme, outlined in our Command Paper entitled Supporting Separated Families; Securing Children’s Futures, which we published in July 2012. I know that noble Lords are well aware that the performance of the child maintenance system has fallen a long way short of the expectations of this House and, more importantly, of the people that the system is designed to help. The starting point for our reforms is that the current child maintenance system is broken. Only half of all children benefit from an effective arrangement, despite the Government spending almost £0.5 billion each year on the child maintenance system.

The system places far too much emphasis on the state determining financial support and not enough on supporting separated and separating families to reach their own arrangements. Too many parents feel trapped in the system, which can entrench conflict and encourage hostility between parents, reducing the likelihood of continued co-parenting. Our surveys tell us that half the parents in the existing child maintenance statutory schemes administered by the Child Support Agency would, with the right help and support, be likely to make their own arrangements. This all needs to change.

Noble Lords will know that the Government are committed to rebalancing the child maintenance system to support families to make collaborative, family-based arrangements. Children benefit where parents work together. We are investing £20 million over the next three years in help and support for separated families in order to help co-ordinate existing support services to make it easier for parents to know where to turn when they separate. However, we recognise that not all parents can make family-based arrangements, so we will introduce a new, fairer and more efficient but still heavily subsidised statutory scheme for those who most need it. No doubt noble Lords will have views on our proposals for charging for using the new scheme, which I do not propose to dwell on today. Noble Lords will know that the Government are presently consulting on the charging regulations. After the consultation, Parliament will have an opportunity to debate the charging regulations package. As noble Lords will remember, I made a commitment to involve them fully in that process outside the formal part of it.

I shall move on to the detail of the two sets of regulations themselves in a moment, but first I will briefly touch on the benefits of the new scheme. It will benefit from better links with other parts of government and clients will therefore receive an improved service. We will be able to process applications more quickly and tackle those parents who miss a payment much more rapidly. The scheme will be introduced using a

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pathfinder approach in the coming weeks. As we have always said, our priority is to go live first time with a system that works for clients. We are currently undertaking our final round of testing and training to enable us to go live by the end of the year. Initially, we will accept new applications on to the scheme where four or more qualifying children with the same parents are named in the application. When the new scheme is seen to be working well, we will open it to new applications where there are two or more qualifying children with the same parents, and thereafter to all new applicants.

The draft Child Support Maintenance Calculation Regulations 2012 set out the new rules relating to how child maintenance will be calculated, including how income is determined and the circumstances in which the calculation may be varied. They will apply to applications for child maintenance under the new scheme. The regulations will also tackle some problems that have been identified with the existing regulations. They will introduce the following main changes.

Maintenance calculations will be based where possible on the non-resident parent’s latest tax-year gross income as reported by HMRC. Assessments will depend less on what parents choose to disclose about their income, ensuring a fairer and faster child maintenance service. For the first time, maintenance calculations will be reviewed annually using the most recent income information provided by HMRC to ensure that they remain fair, accurate and up to date. At the moment, cases are reviewed only when either parent contacts the agency to report a change in circumstances, which means that some cases have not been reviewed for many years. In-year income changes to the calculation will not be made unless the non-resident parent’s income changes by at least 25%. This will make it easier for parents to budget, giving them greater financial security and promoting financial responsibility.

Students with a significant gross weekly income will no longer be exempt from paying child maintenance. An assumption of shared care equivalent to one night per week will be made where parents agree in principle that there is shared care but cannot agree on the number of nights. Parents who share the care of their children exactly equally will no longer be required to pay maintenance through the statutory scheme, resulting in both parents being treated fairly. Parents with care will no longer be required to provide evidence to support an application for a variation of the maintenance calculation as income information will be available through HMRC.

These regulations do not include assets and lifestyle- inconsistent variations. They replace these with expanded “unearned income” variations that capture a non-resident parent’s taxable income from property, savings and investments including dividends, and other miscellaneous income declared to HMRC. The intention is to base maintenance calculations on income details available through HMRC, thus reducing the burden on parents with care to provide supporting evidence when they apply for a variation. I believe that this will allow more parents and their children to benefit from maintenance valuations that genuinely reflect the income of the paying parent in the case.

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To encourage parents to make their own maintenance arrangements, children supported outside of the statutory scheme through a family-based arrangement, court order or under child maintenance schemes abroad will be acknowledged in the same way as qualifying children within the maintenance calculation. The non-resident parent will be required to provide evidence of a formal or informal agreement that ensures they are paying for a child before this change is applied in a particular case.

The Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012 lower the percentages by which a non-resident parent’s gross income is reduced to take account of relevant other children living in his or her household. This will ensure that the maintenance calculation makes a more equal allowance between the children who are the subject of the maintenance calculation and any relevant other children who live with the non-resident parent. They also set out the minimum amount of liability where the non-resident parent is party to another maintenance arrangement which they wish to have taken account of in the maintenance calculation.

These regulations will, first, reduce the percentages applied to relevant other children to better equalise the treatment between first and second families. Let us take an example of a non-resident parent with a gross weekly income of £300, one relevant child and one qualifying child. Without these changes, the non-resident parent’s income would be reduced by 12% to make allowance for the relevant child—a reduction of £36. The reduced gross weekly figure of £264 is then carried forward; 12% is then applied to £264 to calculate the maintenance for the qualifying child, resulting in a liability of £32, so there is a £4 difference between the amount notionally allowed for the relevant other child and the amount calculated as payable for the qualifying child. Using the same example but with the 11% reduction for the relevant child proposed in these regulations leads to a difference of only £1 between the amounts allocated for each child, so, as far as possible, the same financial provision will be made for all children within the maintenance calculation.

These regulations will, secondly, make the minimum liability for a non-resident parent subject to other maintenance arrangements for other children at £5 per week, keeping it in line, as intended, with the flat rate of child maintenance which is payable by a non-resident parent whose gross weekly income is more than £5 but less than £100 per week, or who is in receipt of certain prescribed benefits.

The Government consulted stakeholders publicly on proposed measures between 1 December 2011 and 23 February 2012. As part of the consultation process, the previous Minister for Disabled People also met with key stakeholders together with officials at a stakeholder meeting held in January to get their views. We received 36 responses to the consultation. Respondents to the consultation were generally supportive of the draft regulations and the points raised were considered when finalising the regulations. I beg to move.

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Lord McKenzie of Luton: My Lords, I thank the Minister for introducing these regulations. We should start by making it clear that we support the thrust of the approach reflected in them. Indeed, why wouldn’t we? It stems from our work on legislation when in government. We support the objective of maximising the number of effective maintenance arrangements for children and of encouraging voluntary or family-based arrangements as well as use of the statutory system. I am not sure that we necessarily agree with the emphasis that the noble Lord places on one rather than another but that is probably a point of detail.

We do not need to dwell on the complex history of CMEC/CSA—I will call it the CSA from now on—and the misery that it inflicted on many families, not to mention more than a few Ministers. However, much of the difficulty derived from the system requiring a lot of information, latterly just from the NRP, many of whom had no interest in complying; indeed, quite the reverse. This was compounded by failures of IT systems and inadequate enforcement powers. So the move to a system which is based on gross income of the NRP, which is accessible from HMRC and does not rely on information from the non-resident parent, is, we believe, the correct way forward. It is also right, in our view, to give some emphasis to what is practical rather than in every respect to make a calculation of intellectual purity, which can, I think, sometimes frustrate delivery.

5.30 pm

There is no doubt that recent years have seen improvements in the operations of the CSA, although there is clearly some way to go. Readiness of the IT systems to cope with the new basis of calculation will be crucial, and my noble friend Lady Sherlock will, I think, probe that matter in some depth.

The end objective for the strategy scheme is one basis of calculation for all within it. Until that is achieved, the CSA will have to contend with cases determined on a historic basis; those on the current scheme; those dealt with manually in so far as they are technically on a different scheme; and those on the new scheme. The transition through this will clearly be challenging. Although not before us today, the issue of taking everyone out of the statutory system and then applying a fee for rejoining seems just another aspect of pushing people away from the statutory system.

We have some questions. We have received a briefing from the Law Society of Scotland which, in particular, focuses on the 12-month rule, recipients of Armed Forces pensions and their flat rate contribution, and the changing of the Child Support (Variations) Regulations 2000. The issue of the 12-month rule is not, as I recall, a new one, but given the added impetus for people to make their own arrangements outside the statutory system, can the Minister say whether this issue has been specifically reviewed? Can the Minister also comment on whether it is correct that the whole income of the recipient of an Armed Forces pension is ignored for child support purposes and not just the pension itself? Is this the policy objective?

We will perhaps come to the matter of variations in a moment.

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The issue of shared care has been a long-standing problem and, as we have heard, seeking to get it settled has often held up progress on a case. Can the Minister confirm that the adoption of the one-night formulation is predicated on there being agreement that there is a shared care arrangement but disagreement as to its extent? If there is a dispute as to whether or not there is shared care at all, how is that matter to be resolved? How is the determination of equal day-to-day care to be resolved when the parties do not agree? Given that equally shared care will mean no statutory maintenance liability, this is a crucial determination. We obviously would not want to see its application used as another means to push people from the statutory system.

The 25% tolerance level by which income must change for the annual review figures to be adjusted is not an easy judgment, as my honourable friend Anne McGuire made clear in the other place when these regulations were debated. This is particularly so given the volatility in the current jobs market and the increase in part-time working. As for deduction of pension contributions other than by net pay arrangement, the regulation states,

“if the non-resident parent so requests”,

so I ask what sort of prompt is envisaged will be available to the non-resident parent to at least raise the issue or believe it to be of relevance.

The rationale behind the exclusion of tax credit income, which I believe disappears under the universal credit, is something that should be explained, but again I believe that my noble friend Lady Sherlock, an expert in these matters, will pursue that issue.

Can the Minister say more about investment and unearned income? It is understood that this will be excluded from the NRP’s income in the calculation unless the PWC seeks a variation. HRMC will then be asked to provide details of unearned income from the NRP’s self-assessment return.

In another place, the Minister suggested that this threshold was driven by HMRC requirements—the £2,500 threshold—and that unearned income below this amount did not have to be reported via self-assessment. It was suggested that to include it would create an inconsistency between earned and unearned income. Perhaps the Minister can expand on that point. On the basis of current interest rates, unearned income of about £2,500 would imply an investment pot of the order of £100,000. The figure, of course, includes only taxable income. Income from ISAs in particular would be excluded. Is it proposed that this figure be kept regularly under review?

A genuinely worrying aspect of the proposals is the denial of the opportunity for a parent with care to seek a variation to the maintenance calculations on the grounds that the NRP’s lifestyle is inconsistent with declared income. It is accepted that dealing with such claims has been particularly resource intensive, but we should also recognise that, sadly, some NRPs will go to any lengths to avoid meeting their maintenance obligations. No effective alternative approach is offered in these regulations. This is to the disadvantage of PWCs.

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Obviously to the advantage of PWCs is the increase in maintenance where NRPs are on low incomes or benefits, although doubling the liability of the poorest is a bit steep. As is clear from the impact assessment, the new calculation rules will lead to considerable changes to current outcomes for a variety of reasons. The regulations are likely to change the amounts due for hundreds of thousands of existing parents. What advice and information is to be made available to help parents make appropriate decisions under these new regulations? However, I conclude by reiterating that we are supportive of their thrust.

Lord Kirkwood of Kirkhope: My Lords, perhaps I may make a brief intervention in this important debate. I am opposed to charging, and I hope that we will be able to get rid of it. I understand that there are deficit reduction problems, but an important state-run service should be available to single parents who are struggling to raise children, sometimes with little or no help from non-resident parents. That is what we should be aiming for in the long run and as a matter of principle.

The current plans underestimate the extent to which winners and losers will become a big issue when the plans are eventually rolled out in full. The extent of this change has not properly been taken into account, and there will be big swings in both money in and money out of the hands of non-resident parents and parents with care.

However, I want to concentrate on the National Audit Office’s concerns expressed in February 2012 after it started to look at whether implementation of phase one and phase two of the plans may or may not be delayed. I remind colleagues that at that stage the commission planned to introduce the new scheme in two phases. In phase one, the commission would be able to enter applications to the new scheme from new clients from October 2012. That was the plan in February, and we are now into October. Phase two was to be started six months later, with an indicative start date of July 2013. That would involve the launch of the whole statutory gateway service, introduce charges and transfer the caseload.

I read the NAO report with great interest, and I read page 37 with particular interest. It was headed,

“Figure 17 … Commission risks repeating past mistakes”.

Some of us have been following this saga since 1991. The NAO rightly said that if this policy is to have any chance of success, the new maintenance system needs to be properly worked through and, importantly, it needs a new IT system that works. I understand, although I may be corrected if I am wrong, that the new IT system commissioned from Tata Consultancy Services—TCS—is a mixture of agile computing, which is an iterative way of developing programmes, and more conventional ways of delivering government IT systems.

The February NAO report is concerning as, among other things, it says at page 38:

“The Commission reported to the audit committee in October 2011 on the high risk that the change programme may not deliver phase two functionality within agreed timescales, to realise the benefits outlined in the business case”.

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Therefore, there was an early risk. People understood that this was a challenge and that the system might not be delivered on time. The next paragraph of the report—paragraph 3.27—expresses the worry that:

“The Commission has not built any contingency into delivering the new scheme”.

This worrying NAO report was produced in February. The NAO was right to mention both those points about the functionality of the computer and the lack of contingency plans.

The next iteration of the development of the IT issue and the possibility of delay in the IT system occurred when the Permanent Secretary and the then chief executive of the Child Maintenance and Enforcement Commission, Mr Shanahan, appeared before the Public Accounts Committee. At that stage, the Permanent Secretary and the CEO of CMEC were bullish about the fact that the NAO report was out of date. They said that phase one on its own merits had,

“a delivery confidence assessment of amber/green”,

from the Office of Government Commerce, and that that office’s review described the whole project, including phase one and phase two, as,

“having substantial risks, which the programme is taking sensible steps to manage, meaning that the delivery confidence overall is amber”.

Therefore, the NAO report, which adverted to real concerns, was batted back by the Permanent Secretary and Mr Shanahan when they made those remarks in March 2012.

The last annual report of the Child Maintenance and Enforcement Commission, which was produced just before it was taken back into the department in July 2012, revealed that,

“over the last 6 months of the financial year, slippage occurred around testing”.

It went on to refer to,

“a number of required actions to improve delivery confidence”.

We were also told that a pathfinder would be used to introduce the new scheme. Therefore, phase one was no longer where it was supposed to be; it is now a pathfinder. The annual report goes on to say:

“This, and improved testing velocity, mean that the Executive Team has strong confidence in a successful October introduction”.

However, I do not know what “testing velocity” means. That report was issued in July 2012. The Minister tells us today that the pathfinder seems to have changed. Before I continue with that point, I should say that my good friend, Professor Steve Webb, said on 11 September that the pathfinder group would be extremely small and would consist of parents with main care who had four or more children, where at least four of the children had the same non-resident parent. That is hundreds or it might be thousands—these are new applicants—so this pathfinder for phase one is nearly invisible as far as I can see. It has not started yet. If that was not bad enough, my good friend, Professor Webb, when answering questions about this in the other place on 11 September, said that,

“we are now in the final stage of testing, with new system staff training to start in a few weeks”.

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That was the position on 11 September. We have been here before. We deserve some assurances about the implementation schedule for all this.

Obviously, the delay is of great concern to the NAO because the business case means that savings of £117 million need to be made between now and 2014-15. In this delay in implementation, the full phase one/phase two configuration costs the taxpayer £3 million a month. These are big sums of money.

5.45 pm

My concern is really about the quality of service. We all know what it means if the computers do not work for people applying and using this system. The evidence of that in the past is there for all to see. First, what is the problem? Is it code? Is it that the relationship between the department and this new Tata Consulting Services is not working? How long will phase one, with its tiny profile, continue? Secondly, can we have an absolute assurance that phase two, which will roll out the charging and bringing across the cases, will not start until this system is absolutely guaranteed to work at scale? If this whole system of charging was delayed for five years, I would be very pleased in some respects, but that is a facetious point to make. The more serious point is that we need at least nine months of serious testing at load before we can start thinking about introducing phase two safely. That has big consequences for the savings that the new departmental service is supposed to achieve between now and 2014-15.

What has gone wrong since July 2012? Can we have an assurance that we will have a decent period of full running with a caseload of all new applicants before parents with existing CSA cases are moved across? What are the contingency plans if the computer system does not work properly? These are technical issues and may be indirectly related to the statutory instruments, but I for one am very concerned. There is an awful sense of déjà vu all over again about these things. I know that the Minister understands computers and these systems. He has persuaded me that agile computing is a big improvement—I believe that. I just hope that he can put on record the fact that it is not that we are just not facing up to the fact that this computer system is slipping, and in a way that we really should be told about if there are the kind of problems that I suspect there may be.

Baroness Sherlock: My Lords, I should like to pick up where the noble Lord left off. I am grateful for the opportunity to discuss this rather large package of regulations. In doing so, I should remind the Committee of my declared interests, which include having been a non-executive director of CMEC and, in the dim and distant past, a deeply historic interest in having once been the chief executive of the National Council for One Parent Families, which is now part of Gingerbread—to whom I am very grateful for their briefing, as with other organisations.

I will focus on three specific issues. One has just been picked up, about the readiness of the new statutory maintenance system. Secondly, perhaps the Minister could help us better understand the decisions behind what income to include or exclude. Finally, I will pick

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up another issue raised by my noble friend Lord McKenzie of Luton about the readiness of parents for the introduction of the new system.

First, on the readiness of the system, I was very glad that the noble Lord picked up the issue of the pilot group. I was going to ask the Minister to give the names of the members of the pilot group because frankly I cannot believe that it is so big that he could not, with his legendary skills, memorise their names very easily. The question is whether he is confident that a pilot group of that size and peculiarity, statistically speaking, will provide all the evidence the department needs to assess whether the system will work once it is rolled out properly.

The second question raised by the noble Lord, Lord Kirkwood, is much more worrying. It is the idea that we will end up seeing the critical testing of phase two performed in parallel with the programmed delivery of phase one. What will that tell us down the line? I read the report from the Public Accounts Committee, which I am sure is acid-etched on the Minister’s heart. He may recall the questioning by Mr Bacon, who was teasing out whether, when simultaneous testing and development had been tried in the past, it had led to problems. He mentioned tax credits, the Criminal Records Bureau and the Rural Payments Agency. He said:

“The testing was done in parallel in all of them. In some, they hit the go-live button when they knew it didn’t work properly, so we are right to be concerned about this, aren’t we?

The committee was taking evidence from the Permanent Secretary, Mr Robert Devereux. Mr Bacon went on to say:

“So you are not going to hit the live button until you are sure it works, even if it means a delay?”

Robert Devereux replied by saying:

“Absolutely not, and you can assume that that is exactly where Ministers are too. We are perfectly aware of the history”.

I should like to give the Minister the opportunity to go on the record himself on this. Can he assure us that this will not happen? Does he personally have confidence in the amount of testing that it will be possible to carry out before the system goes live?

What assurances can the Minister give about the consequences of the potential losses that have just been mentioned? If delay is going to cost the department £3 million or £4 million a month, will that money come from anywhere else in child maintenance? If so, will we have an opportunity to scrutinise the effect of that? I am also interested in what potentially could happen. My noble friend Lord McKenzie said that a series of different systems could all be running at the same time. Could there be a period, and how long would it be, when delivery staff might be running four systems in parallel? These would be CSR, the pre-2003 old-rules system; CS2, the 2003 current-rules system; the offline clerical system; and the new IT system. What is the maximum period during which the four systems might run in parallel? Given the cuts in staffing levels under the resource constraints the department is facing, can he give an assurance that the department can manage this so that existing CSA clients do not suffer as a consequence?

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The next area that I want to address is the effect of the decisions that the Government have taken in relation to the amounts that will be payable. I am particularly exercised, as my noble friend Lord McKenzie flagged up, about the decision that the new system will ignore tax credits when considering the income of a non-resident parent. According to the Government’s own estimates, around 100,000 existing CSA clients could lose an average of £6 per week in child maintenance as a result of changes to the way it will be calculated. Tax credits will no longer be counted as part of gross income. That is significant because at present just under a third of non-resident parents within the CSA are entitled to tax credits, and therefore a significant financial blow to many single-parent households will be coming at a time when they are already suffering in other areas. They will end up having to pay fees for charging out of their current income, and they are facing cuts to benefits in other areas. There are all kinds of problems for this category, and they could be quite significant. I will not go into any more detail until the Minister has had a chance to respond, but I reserve the right to come back on it. Can the Minister explain quite carefully what alternatives were considered? Given that tax credit information rests with HMRC and is therefore available to the department, why can that information not be considered?

Secondly, as others have mentioned, the Government have confirmed that for non-resident parents within the statutory scheme, they intend to raise the minimum flat rate of child maintenance from £5 per week in current-rules cases to £10 per week. That rise is far above inflation, which would probably have been to around £7, but it amounts to 14% of a single person’s weekly jobseeker’s allowance of £71 per week. That is a significant amount of money and is even more than the 12% of earnings that a working non-resident parent in the £200 to £800 band will be expected to pay. Two things have happened here. The parent with care may be getting less money while the non-resident parent in the poorest income bracket will have to pay a higher proportion of his income than those who earn more. On top of that will come the 20% collection charge, should that become necessary.

At the same time, the scheme will be more generous to self-employed parents. The Public Accounts Committee recently criticised the fact that the maintenance calculation will be based on taxable earned income for PAYE taxpayers and total taxable profits for the self-employed. Unearned income such as dividend income or rental income will not be counted. The onus shifts to the parent with care to find that out and apply for a variation. It is only at that point that HMRC will be asked to provide details of taxable unearned income, which it presumably must have anyway. I accept that that will not be the case below the threshold, but I am interested in how that will happen in practice.

The PAC report states:

“The Commission should plan to access all information on income when assessing how much maintenance non-resident parents should pay”.

The report explains how in the new system’s maintenance calculations will happen, and continues:

“Relying solely on parents with care to identify such practices by the non-residential parent to ensure all significant taxable

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income is taken into account is unreasonable when taxpayer data are available to the Commission. The Commission should access all data on all taxable income sources, such as capital gains and dividends, to calculate the maintenance due, not just PAYE information. Where self-assessment data is not filed until later, the Commission should reassess the maintenance due as part of the next annual review”.

This is particularly especially important because—if I have understood correctly, and I may well not have done as I am rather out of date—HMRC data on income will in future be treated as final so there will not be an opportunity for the parent with care to seek a variation on the grounds of lifestyle, which is what I think the Minister was saying at the outset. This means that there will not be an opportunity for a child maintenance assessment to take account of significant non-taxable income, as my noble friend mentioned, such as substantial ISA and savings certificate holdings or a failure to declare income. I am interested in how the Government respond to the PAC’s concern. Will the Minister explain to the Committee how that combination of the fact that this income does not have to be taken into account and the greater difficulty for the parent with care in being able to persuade the authorities to take it into account, should she be aware of it, will be dealt with? What steps will the Government take to make sure that any potential deliberate evasion of maintenance due will be tackled?

Finally, I want to explore what steps will be taken to prepare parents for the impact of the changes. The new calculations seem to be creating considerable losers and gainers among existing CSA clients who move into the new system. Of course, some gain and others lose, but each time that that happens, there are two parties to that transaction, so it is not always a zero-sum game. The department has managed to make it worse than a zero-sum game by taking charging out on top so everyone is potentially worse off. At the very best, it will be a zero-sum game.

When the new historic gross-income method of calculating comes in, around 9% of existing non-resident parents—just over 100,000 cases—could see a rise in liability of £40 or more per week. Around 3% of existing parents with care—some 33,000—could get £40 per week less. These are very significant sums. Given that, what information and advice will be given to parents regarding the impact of the new rules to prepare them for the translation to the new system? Have the Government given consideration to any kind of transitional help? In other changes in benefits or tax credits, or even in the replacement of council tax benefit, the Government have been able to be persuaded that some sort of transitional help should be available because the jumps in the amount people have to pay or the reduction of the amount they receive are simply too great. Why have the Government not been able to come forward with some means of helping parents in this system?

I shall not say any more at this stage, but I should like the opportunity, if necessary, to come back at the end. I hope the Minister will be able to give us a detailed account of these very significant regulations with enormous consequences. I look forward to hearing his response.

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Baroness Howe of Idlicote: My Lords, because the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Sherlock, have covered almost all the points I was going to make, I shall be very brief. It is estimated that the new system will lose between £3 million and £4 million a month, which is very concerning. Where is that going to be taken from if it continues? We would be very grateful for some reassurances. Although the plan is behind in its full implementation and in the benefit savings that we expected, a little more reassurance on that point would be extremely welcome.

The other point I wanted to stress was this business of the non-resident parent receiving unearned income that was not part of the calculations on which his contribution was being assessed. I have to say that I found it slightly odd that it was now going to be left to the caring parent, the one doing the work, to go out and do the research for themselves—I should have thought that that was a little over the top—and then come back and have the situation looked at again by HMRC to see whether it could make any adjustments. Nevertheless, it would be useful to hear from the Minister that a rather more caring approach should be given to the people who are doing the real job of bringing up the children, and that these sorts of responsibilities should not in future be left to those people to justify action that the Government should be taking on their own account.

6 pm

Lord Freud: My Lords, the debate has strayed somewhat from these regulations, most substantially into the readiness of IT. I shall try to deal with that issue full on, because it is a fair question.

The concern is that the new system is late and will not work, and the normal things that people get concerned about with IT were raised. There is clearly a balance here to be struck as regards making sure that you deliver what you are intending to deliver in terms of savings and product, and making sure that it works. You fine-tune that as you get closer and closer and you know more. Regarding the timing, as my noble friend said, we were planning to start in October. It will be a few weeks after that when we will really go in on phase one, but in the scheme of things, it is a few weeks late but will come in safely because we are currently testing to make sure that when we start the system is working. The general point I was asked was: will we go ahead before we are confident that the system works? I can give an absolute assurance, and repeat what the Permanent Secretary said, that we will not go ahead until we are confident that the system will deliver for both the client base and the taxpayer.

The first phase will go ahead in a matter of weeks. As regards the numbers that my noble friend was interested in, we will begin incrementally. In the first phase, we will start off with literally 100 or 200 cases a month for the first, say, four months. We then move up rapidly in the next couple of months to 3,000 or 4,000 cases a month. After six months, when we take over all the new intakes, we will be dealing with 10,000 cases a month. That is the planned progression. Again, as regards the question of the noble Baroness, Lady Sherlock, on when we will press the button, I should

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make it absolutely clear that we will not do so unless we are confident that this works. Everyone here knows the history, and we are as conscious of that as anyone.

I take the question of personal assurance very seriously. For a lot of the computer systems that we are introducing, and universal credit in particular, I will give personal assurance. This system is not actually part of my personal portfolio. Although I am dealing with it for the House, the reality is that I am not sitting on this particular computer system with quite the same ferocity—

Lord Kirkwood of Kirkhope: My Lord, that is what worries me. Is it still the case that the target date for the introduction of phase two is July 2013, with a few weeks’ slippage?

Lord Freud: We are still on that timetable, absolutely. But we will be flexible as a department. The one piece of advice that the Public Accounts Committee has given to us as a Government, and to the last Government, is to feel our way into these things, to be flexible, pathfind the way and build from there. So we are taking that advice. We cannot have it both ways. This means that there is not a date on which we must press the button, and if we do not press the button on that day we are late, it is a delay and a fiasco. I believe it is wrong of us as politicians to play with computer systems in that way. It is not the right way to do it. We must go in steadily and introduce these systems in a smart, incremental way. That is the lesson that we have learnt from some superhumungous tragedies. When it comes to computer systems, the Government get a lot of the stick for bad computer system introduction. This is because Government computer systems are publically known. The private sector has just as many snafus with computers as the public sector, it is just that they do not make them public.

This ties in neatly to the point about four schemes in parallel, from the noble Baroness, Lady Sherlock. We already have three systems running in parallel, and this new system will be more automated and more efficient than those. By using the pathfinder approach that I have described, the new system will be working well before we introduce it full tilt. If the new system is working and sustainable with the kind of volumes that I described, then we will be able to manage the four systems that we will have under our hand at any one time.

Baroness Sherlock: I am grateful to the Minister. As I understand it, one of the arguments for the new system was that, as it would be more efficient, there would be fewer staff needed to run it and it would be cheaper et cetera. I know that that may all be up for grabs, but is the Minister confident that the kind of cuts in resource that CMEC had before its transition will leave enough staff to be able to run this? I understand the point he makes about agile development and wanting to take time to run the system in before shedding its predecessor systems. However there is a danger, as seen both here and with housing benefit. As each new system has come in, everybody has been assured that the new system will be the thing that will render all

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previous systems unnecessary, but all that has happened is an accretion of systems. I just want to be confident that he feels that he has the resource to manage all these systems for as long as it takes, because otherwise people stuck on the earlier systems could suffer and find their situation getting worse, not better.

Lord Freud: Yes, my Lords. The approach is to bring in a new system, which is efficient and automated, at a level that does not consume a lot of resource to start with. You are running your existing systems with the resource that they require. As you ramp up the new system, it starts to establish itself, because you are doing it on a careful pathfinder basis that maintains that automation and efficiency. Then you can start, in practice, reducing the load on the other three systems. That is how you get the gains by doing it, and that is why it is so important to ramp up the new system so that it does not throw a huge amount of clerical work back into the system to compound the clerical overload. We are still running 100,000 cases clerically in one way or another. It may appear a bit smoother to the outside world now, but every £100 transferred is costing the state £35, and that is not something that any Government can tolerate. That is the process: get something efficient; roll it out when you know that it works; build it up; and then start to work down your existing portfolio. That is the process.

The noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, asked about assets and lifestyles. The reality is that that provision was very difficult to use, as everyone involved knows. It was not a successful mechanism for the parent with care to use. Capturing actual income is far more meaningful for parents and far more administratively achievable, which is why we switched over to that approach.

The minimum flat rate of £5 has not increased since 2003 and will remain until the new scheme is fully open to all new applicants. I fully accept the point made by the noble Baroness, Lady Sherlock, about whether it is compatible with UC. At some stage in the future, it may be possible to look at tapers and matching it up, but it is too soon to do that. I accept the general point, but I do not think we are there yet.

The noble Lord, Lord McKenzie, asked about ignoring unearned income in the calculation. We are making the main calculation on taxable employment income, trading income or pension income because HMRC holds that information for the vast majority of taxpayers. Taxpayers who are not liable for self-assessment are not required to declare income of less than £10,000 per year from savings and investments. It would be unfair to take account of unearned income details sourced from HMRC and not pursue parents who had that income but were not required to declare it. Asking non-resident parents to supply that information would be to repeat the delays of the current schemes where non-resident parents are often unco-operative. A parent with care can apply for a variation to take account of unearned income. It is the same with shared care. The noble Lord was right that where it was agreed that there was shared care and the disagreement was about how much it was, the one-seventh assumption would come in. Where there was no agreement that there was sharing, it would have to be done by way of variation.

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On taking account of pension schemes, the new scheme will, as now, allow contributions to an occupational pension scheme to be deducted from income, with the resulting figure used to calculate child maintenance. There is no limit on the amount of contributions that can be deducted. That is not a change in the existing system.

Lord McKenzie of Luton: I apologise for interrupting the Minister. The question I asked there was: if it is a net pay arrangement, does it get dealt with automatically via HMRC? If it is not, then it requires the non-resident parent to do something, to say, “I am making these contributions and want that reflected”. My question was whether there would be any prompt to the non-resident parent because many would not necessarily know that that was available to them.

While I am on my feet, perhaps I can go back a bit to this issue of variations, lifestyle and all that. We accept the difficulty in identifying unearned income, particularly that which does not have to be reported to HMRC. Why would it not be in every parent with care’s interest automatically to seek a variation on the basis that the non-resident parent may well have some unearned income, simply to see what comes out of the pot? Effectively, HMRC will automatically have to look at that.

Lord Freud: May I offer to write on that issue? We are layers down. Rather than dealing with that impromptu I will aim to write, as I will on how the prompts might work for the non-resident parent on their pensions. Again, that is getting to a level of technicality that I do not have at my fingertips. On tax credits, ignoring that loses 100,000 families about £6 a week in maintenance. Both noble Lords made that point. Again, that is an attempt to get rid of a level of complexity and drive through simplicity. We have set the percentages and thresholds to ensure that changes in liability are minimised except where, as a flat rate, we deliberately intended to raise them. We expect more than half of non-resident parents to pay more than under the current scheme.

Baroness Sherlock: Does the Minister accept that those who will pay more and the lone parents with care who are getting less may not be the same pairs of people? Obviously one cannot assume that the poorest parents with care are necessarily partnered to the poorest non-resident parents, but actually research shows that broadly speaking it is not uncommon for partnerships to be among people of very similar socioeconomic backgrounds and demographics. Is the Minister conscious that, even if overall many non-resident parents are paying more, the poorest parents with care may end up getting less as a result of the fact that the poorer among the non-resident parents are having this income ignored?

Lord Freud: I am not sure I have a precise breakdown within the socioeconomic groups to do that analysis. I will look later to see if I can send the noble Baroness some information on that. I am not sure off the top of my head that I know how that balances out but I will see what I have and include it to the extent that I do.

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Baroness Sherlock: I am very grateful for that. Also, if that is not the case, I would settle for an alternative justification of the decision.

Lord Freud: I will either produce information or a justification.

On the war pension point made by the noble Lord, Lord McKenzie, a war disablement pension is considered a prescribed benefit, in which case the flat rate of maintenance will apply. A parent with care can apply for a variation to take account of any additional income received by the non-resident parent.

On the 12-month rule and the position with the Scottish minutes of agreement, we are in discussion with the Ministry of Justice and colleagues in the Scottish Government to ensure that the statutory maintenance system and the family justice system both north and south of the border work together as effectively as possible in the interests of parents and children. We are hoping to meet family lawyers’ representatives in England and Wales and Scotland to discuss this soon. However, I should say that at this point we are yet to be convinced that there is a compelling case for legislative change.

In reply to the question from the noble Baroness, Lady Sherlock, on the level of information and evidence required from a parent with care to make an application for variation, the link with HMRC means that the department has immediate access to a non-resident parent’s income information, which removes the requirement for the parent with care to supply substantial evidence of the non-resident parent’s financial circumstances. That means that fewer applications will be rejected at the preliminary stage and makes it easier for the parent with care to apply for variations. I believe that I have dealt with all the questions.

Lord McKenzie of Luton: Perhaps I may briefly revert to the issue of shared care when it is equal shared care. Obviously if both parties agree that there is equal shared care, they would not be in the system anyway because no maintenance would flow from it. Clearly it is potentially in the interest of the non-resident parent to claim equal shared care because then there would be no maintenance liability. What will the process be for determination of that and whether any form of appeal is attached to it?

Baroness Sherlock: One of the questions I asked was in relation to preparing parents in the current system for moving across to the new system, in particular transitional protection. I apologise if I missed the Minister’s answer.

Lord Freud: On transitional protection, the basic approach is that these rules have been very difficult to operate and our intention is to have very simple rules that are capable of being applied to the majority of parents. While there may be winners and losers, we expect there to be relatively few large losers. Many of them are likely in any case to go into a family-based arrangement, which may be a better option. That is the reason for not planning transitional protection.

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We will be providing an expanded service of information and advice to customers before the launch of the new system, to be called “Help and support for separated families”.

The way it will work is that if there is equal shared care and there are no payments either way, both parents have to agree that. If there is no agreement, we will go to the one-seventh proportion; that is, one night of shared care. We will accept verbal information about shared care, but both parents must agree. If they do not do so, we then move into the more formal process.

I am down to a very few issues on which I can now write to noble Lords, otherwise we will be here all night. There will be plenty of opportunities to debate these issues since further debates on the child maintenance system are coming up, and I know that many of us are looking forward to those. However, these regulations are narrow in scope and focus on simplifying the statutory child support scheme, improving the service to clients, reducing the costs to the taxpayer and increasing the flow of maintenance payments to children. I am heartened by the fact that there is support in

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principle, albeit that I will provide some more detail. On that basis, I commend this instrument to the Committee.

Motion agreed.

Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012

Copy of the SICopy of the Report

Considered in Grand Committee

6.25 pm

Moved by Lord Freud

That the Grand Committee do report to the House that it has considered the Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments.

Motion agreed.

Committee adjourned at 6.26 pm.