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House of Lords

Monday, 11 February 2013.

2.30 pm

Prayers—read by the Lord Bishop of Worcester.

NHS: Private Companies


2.36 pm

Asked by Lord Winston

To ask Her Majesty’s Government whether they have plans to exempt private companies providing services to the NHS from corporation tax.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, the Government will not be exempting private sector providers of NHS services from corporation tax. The purpose of Monitor’s fair playing-field review is to ensure that any providers, be they NHS, for-profit, community or voluntary sector organisations, that are able to improve the services offered to patients are given a fair opportunity to do so.

Lord Winston: I am grateful to the noble Earl for that reply and deeply reassured that corporation tax will not be in the equation. Given that the NHS is not good at costing out its treatments, how can he be sure that the private sector will not charge what it thinks the market will bear rather than the actual cost of the treatment it is delivering?

Earl Howe: My Lords, the Government’s policy is that competition should never be deployed for competition’s sake but only in the interests of patients. Furthermore, competition should be on the basis of quality and not price. The answer to the noble Lord’s question is that we need to arrive progressively at a system of tariffs that fairly reflect the value and cost of the work that providers do, and that all providers should compete equally on that basis.

Baroness Jolly: My Lords, Parts 3 and 4 of the Health and Social Care Act were rigorously debated. Will my noble friend confirm that the regulations covering this will be laid down soon, as 1 April is less than two months away?

Earl Howe: I can tell my noble friend that the Government intend to lay these regulations shortly.

Lord Harris of Haringey: My Lords, it is gratifying that the private sector will be expected to pay corporation tax. However, can the Minister tell us how the private sector will make an appropriate and proper contribution to meet the needs of a full and broad range of training within the NHS, given that in some instances it will not be providing a full range of services?

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Earl Howe: The noble Lord raises an important point. A great deal of work is currently being done on the way in which the education and training of NHS clinical staff is funded. Changes are being made this year in order to make funding fairer and more transparent generally, and the Government will consider any further recommendations that Monitor may choose to make in this area if they would bring about further benefits to patients.

Lord Swinfen: My Lords, how will the quality of the work be evaluated?

Earl Howe: My Lords, the system will operate in a way that ensures that non-NHS providers who provide services to the National Health Service pass a quality test with the Care Quality Commission. They will be obliged after that, should they receive the benefit of contracts from the NHS, to demonstrate that they have abided by the terms of the contract.

Lord Brooke of Alverthorpe: My Lords, as the Government are contemplating introducing a new factor into contracts in which government work is let out to international companies to ensure that they are paying their tax properly, what will they do about the NHS? Have they any plans to apply that kind of system to letting contracts for NHS services?

Earl Howe: My Lords, the answer to that question will need to wait until Monitor has reported to the Secretary of State, which it has not yet done. I know that it is considering a number of aspects of the fair playing field generally, and that may well be one of them. When I am in a position to answer that question, I will be happy to do so.

Lord Flight: My Lords, what will the Government’s policy be towards the term of contracts? One of the big problems with PFI has been that the contracts were too long, but it is quite difficult to combine getting both commitment to service and investment and prices updated.

Earl Howe: My noble friend is absolutely right. Various contracts have been criticised for being too long: PFI is perhaps a good example. Other types of contract have been criticised for being too short because they do not enable providers to invest on a sufficient timescale in order to be able confidently to bid for work. I have little doubt, once again, that this is an area that Monitor will look at and make recommendations upon.

Lord Foulkes of Cumnock: My Lords, will the Government consider requiring companies providing services in the NHS to pay their employees at the very least the national minimum wage and preferably a living wage?

Earl Howe: My Lords, the national minimum wage applies across all sectors and therefore all employers need to pay heed to that, including those in the healthcare sector.

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Lord Naseby: My noble friend mentioned tariffs. Will it be a tariff across the whole of England or will it reflect the differing costs, particularly in overheads, of, say, an operation in London and an operation further north?

Earl Howe: My Lords, there are tariffs that are nationally set and others that may be locally set, but there is scope to vary even the national tariffs if there is a good reason to do so on the grounds of local variation in costs. There is some flexibility in the system, but the main basis of the policy, as I stressed earlier, is that, where competition occurs, it should be on the basis of quality and not price.

Baroness Meacher: The CQC has an incredibly important job to do, but we know that it is very overstretched. What systems do the Government have in place to ensure that the CQC’s scope is adequate to monitor all private and NHS facilities and ensure that they are providing a sufficiently good service?

Earl Howe: I am aware that the board of the CQC is looking at that very question at the moment in the light of the Mid Staffordshire review. The noble Baroness is absolutely right. I think the essence of the answer to her question is that a risk-based approach must be adopted so that areas that are deserving of more attention from the CQC receive it and areas that are of lesser concern are allowed to act accordingly without interference.

Baroness Royall of Blaisdon: My Lords, the Minister spoke of the possibility of local tariffs. How does that translate into regional pay? Is the Minister in favour of regional pay for people working in health service?

Earl Howe: My Lords, regional pay is already allowed for under Agenda for Change, and has been for a number of years. The Government do not intend to change that.

Lord Campbell-Savours: What about the living wage?

Earl Howe: I am not sure what the noble Lord’s question about the living wage implies. I answered a question about the minimum wage, which is what the law entails. It is of course up to employers to ensure that they pay their employees in a way that is not derisory and that reflects the value of the work that they do.

EU: Membership


2.45 pm

Asked by Baroness Morgan of Ely

To ask Her Majesty’s Government which European Union member states have indicated that they are willing to consider a request from the United Kingdom to develop a different relationship with the European Union, either within or outside the existing European Union treaty.

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The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi): My Lords, the Government frequently discuss a range of issues with other European Union member states, including the key challenges that all EU countries face. Those include dealing with the eurozone crisis, increasing competitiveness and taking steps to improve democratic accountability. Many EU member states agree about the need for reform to address those challenges.

Baroness Morgan of Ely: I thank the Minister for that reply. I am sure that most member states would agree on the need to reform some aspects of the EU, but for the UK to develop a different relationship with the EU, every member state would have to agree. Any country could say no, and that would be the end of the story. That would leave this country in a very precarious position, particularly given that the Prime Minister has promised a referendum. Does the Minister therefore agree that the fate of the future relationship with the UK with its main trading partner is too serious a matter to gamble on the whim of any single country, particularly in the light of the fact that the Governments may change in the next few years?

Baroness Warsi: The Government certainly feel that the challenges in Europe at the moment are too serious to ignore. As the noble Baroness herself says, there is a need for reform. There are some serious challenges in relation to competitiveness, the changes that have come about because of the eurozone and the most serious issue of improving democratic legitimacy. There is a real disconnect between the citizens of the European Union and what they feel that the European Union is doing for them. It is right, therefore, that Britain is leading that debate.

Baroness Falkner of Margravine: My Lords, does my noble friend agree that, with banking union on the table, the financial transaction tax, fiscal union and eventually political union within the 17 euro-ins, now is probably not the time to be defining parameters and deciding where we want to go; and that we need to see how those things evolve before we decide what representations we are to make about the EU?

Baroness Warsi: My noble friend always comes at these matters with real experience, but on this occasion I have to disagree with her. It is precisely because of the real challenges to which she refers that this is the time to ensure that we are at the forefront of forming the debate and reforming the EU to being in the best interests of this country, but also of the wider European Union.

Lord Liddle: My Lords, taking the noble Baroness back to the original Question, although there is sympathy among several member states with some of the themes of the Prime Minister’s speech, and although there is widespread agreement on the need for reform, surely that is seen to be reform that affects the whole of the EU. What is the position if there is no treaty that reforms the whole EU by 2017? Will the British

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Government then be pressing for a special renegotiation purely for Britain? Since the Prime Minister’s speech, how many member states have indicated that they might support such a special renegotiation for Britain alone?

Baroness Warsi: I can assure the noble Lord that we have set out on the right path. It is right for us to acknowledge, as he does, the need for reform. It is right for us to move forward with ensuring that we work out our relationship with the European Union. The balance of competences review that the Government are undertaking will lay out where we feel that the European Union helps and where it hinders.

The noble Lord asked from where support has come. Only last weekend, we saw the Prime Minister take a very front-footed, brave and national-interest position on the European budget. I could read to the noble Lord many quotes of support from around the European Union—from the Danish PM, the Swedish PM and the Finnish PM. I assure him that there is a real appetite for reform across the European Union. Those of us on this side of the House are leading that debate, but I am sure that, in due course, noble Lords opposite and, indeed, the Labour Party will also commit to that reform.

Lord Mackay of Clashfern: My Lords, it seems likely at the moment that some reform will be required to meet the needs of the eurozone. As the noble Lord, Lord Owen, powerfully reminded us in the debate on the Queen’s Speech at the opening of this Session, that requires the United Kingdom to have a position about what the situation should be because it is not in the eurozone. It is bound to affect the whole European Union. Surely it is better to think about it now than to wait until a decision that we have not had time to think about is suddenly required.

Baroness Warsi: I assure my noble and learned friend that we think about these matters all the time. A new treaty has not been ruled out; it is being actively discussed in the corridors of Brussels and many capitals across the EU. The Prime Minister agrees with those who believe that, in the next few years, the EU will need to agree on treaty change to resolve the crisis in the eurozone, to which my noble and learned friend referred, while protecting the interests of those outside the eurozone and driving forward reform for all.

Lord Tomlinson: Would the Minister agree if I suggested to her that in all these requests that we are making for renegotiating the relationship with the European Union, some of them must be abundantly clear without waiting for the balance of competences review? Can she give us a list of some of the imperative items on that shopping list?

Baroness Warsi: This Government do not believe in pre-empting decisions without consulting experts and the public.

Noble Lords: Oh!

Baroness Warsi: Noble Lords opposite may see this as a matter of fun, or indeed as a matter that they take quite lightly. We take consulting with the public, and

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indeed with experts, extremely seriously. We believe it is important that those with the expertise in various areas take part in the balance of competences review, which will conclude in 2014. On the basis of that, matters will be put into the manifestos of individual political parties. I can assure noble Lords that in the Conservative manifesto, there will be a referendum. I am not sure whether noble Lords opposite can confirm whether their manifesto will have a referendum in it.

Libraries: Closures


2.52 pm

Asked by Baroness Bakewell

To ask Her Majesty’s Government what plans they have to limit the ongoing closure of public libraries across the country.

Lord Gardiner of Kimble: My Lords, every authority in England is required by statute to provide a comprehensive and efficient library service. In 2011-12, authorities invested £820 million in their libraries. The closure of a library does not necessarily signify a breach of an authority’s duty to provide a comprehensive and efficient service. Library services are adapting to changing needs. The Government have appointed a specialist libraries adviser to work with local authorities and Arts Council England.

Baroness Bakewell: I thank the Minister for that Answer. Good news is always welcome, however meagre, but the bad news is coming in torrents. Three hundred and twenty-six libraries are under threat, have closed or have left council control since April last year. Newcastle is planning to close 10 out of 18 libraries and Liverpool 10 out of 19. Given the disproportionately heavy cuts to local authority funding in the north of England, when will the Secretary of State use her considerable reserve powers to stop this cultural catastrophe?

Lord Gardiner of Kimble: My Lords, I am very well aware that the noble Baroness is a formidable supporter of public library provision. Indeed, on Saturday I visited two libraries for National Libraries Day, in Eye in Suffolk and Diss in Norfolk, and I am very much aware of the points of view and their importance to communities. To come to the Question, clearly it is important that the local authorities reflect on the local need. That is precisely why there is a specialist libraries adviser, as I particularly mentioned, whose job it is to work with the local authorities where there is a question of libraries being at risk. Clearly, a number of rationalisations have gone on but I take the points that the noble Baroness has made very seriously indeed.

Baroness Miller of Chilthorne Domer: My Lords, what advice would my noble friend give to a community group such as that in Friern Barnet, who wanted to keep their library open and were willing to staff and fund it but found that their local council, Barnet, took them to court to get them out? Happily, the situation

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is now resolved and the library has stayed open but is that not against the spirit of the statute, where the community is willing and able to take the library on?

Lord Gardiner of Kimble: My Lords, there are some very strong examples of community-managed libraries, and I very much support the work that they are undertaking. Indeed, guidance for local authorities on community-managed libraries has only just been published by the Arts Council and the Local Government Association. Professionally qualified librarians are also key to the public library service, and the librarians I met in Diss and Eye were an example of dedicated commitment.

Lord Elystan-Morgan: My Lords, the Minister said, I am sure quite accurately, that the closure of a public library does not of necessity mean a breach of the statutory obligations on that particular local authority. Bearing in mind the scale shown by the noble Baroness, Lady Bakewell, of the closure of public libraries, however, at what point is there a clear breach of everything that statute intended in that connection?

Lord Gardiner of Kimble: As the noble Lord has referred to, this is about a comprehensive and efficient system. I shall expand quickly and briefly on the fact that we have heard about closures but there are in fact some incredibly good success stories of openings and relocations. One of the key challenges for public library provision is where we locate them so that they can be an even greater part of the modernised situations—for instance, new libraries alongside cafes and adult learning classes. These are areas where we can have new openings in urban and rural areas and expansions in certain areas. There will be cases where they will be rationalisation but there is a responsibility to ensure that it is a comprehensive network.

The Lord Bishop of Worcester: My Lords, the Minister has just mentioned success stories. I wonder if he is aware of an exciting development in Worcester of a joint university/city library, which Her Majesty the Queen opened last year. Does he agree that this unprecedented partnership provides a model—a win-win approach if ever there was one—for other places to follow? I wonder, if he has not done so, whether he would like to visit it.

Lord Gardiner of Kimble: I am very keen on rural rides. The Hive in Worcester, as the right reverend Prelate has mentioned, is a new library and history centre, and the first ever joint public and academic library in the country. I could go through the very long list of success stories. I know that there are communities worried about their public library provision but there are good stories to be told in Hackney, Lewisham, Newton Abbot, Clapham, Oldham, Northumberland—I could go on.

Lord Collins of Highbury: My Lords, a comprehensive library service is about more than simply the supply of books. It is about encouraging the joy of reading; it is

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about education. I fear that some of the noises that we have heard from local government simply about alternative provision do not meet the standard, let alone the number, of libraries that my noble friend Lady Bakewell has referred to. What is the Minister’s view about the standards for a library service that meets that need for encouraging reading?

Lord Gardiner of Kimble: My Lords, the Government and the department have continued to fund the Reading Agency and the Book Trust, two very important charities in that sector; indeed, the Book Trust is involved with book-giving for children. One of the key points that I identified on my visit to these libraries is that we are going through a technological revolution in terms of libraries. The number of e-books that are loaned has risen in two years from 100,000 to nearly 600,000. We are going to have to deal with those new technologies and how we encourage young people and the community to be involved. Among the key pilot schemes are the 22 schemes for automatically joining primary schoolchildren—I am told that in Norfolk they will be joined at birth—and the children will encourage their parents to come to the libraries as well.

EU: UK Membership


3 pm

Asked by Lord Davies of Stamford

To ask Her Majesty’s Government how many jobs they think would be created by the United Kingdom leaving the European Union.

Viscount Younger of Leckie: My Lords, the Question is based on multiple hypotheticals and intangible variables. I will do my best to deliver my response with a touch of realism. The Government’s policy on the EU is clear. It was set out most recently in the mid-term review and was confirmed in the Prime Minister’s speech, so no analysis has been made at this time of the number of jobs that might be created or, indeed, lost as a result of a UK exit.

Lord Davies of Stamford: My Lords, I am afraid that the Minister’s bureaucratic evasion cannot avoid the bare fact that no one has ever suggested that leaving the European Union would create a single job, but everybody knows that doing so would put at risk many jobs, both present and future, depending on future decisions about the location of investment. Against that background, why are the Government gratuitously creating this uncertainty for investors and employers? Can we have an explanation for why over the past few weeks several Cabinet Ministers have openly been talking about their willingness to leave the European Union?

Viscount Younger of Leckie:The noble Lord is right in saying that we were right to stay within the European Union. The reason that decisions have been made to get rid of the uncertainty is because questions are

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being asked, not only within the UK but within Europe, about our future, and it is right to settle that now. I stress that the noble Lord is right in saying that it is very important that we stay in the EU. The single market provides UK businesses with access to a market of 500 million customers worth around £11 trillion in 2011. Between 1992 and 2008, the single market is estimated to have raised EU GDP by 2.13% and to have created 2.77 million new jobs. It is estimated that those benefits could be doubled with the removal of the remaining trade barriers.

Lord Pearson of Rannoch:My Lords, given that only 9% of our GDP exports to the European Union, declining and in deficit, that 11% of our GDP exports to the markets of the future, rising and in surplus, and that 80% stays in our domestic economy, is it not obvious that that 91% of our GDP, which is made up of our non-EU exports and our domestic economy, would generate several million new jobs if they were freed from the stifling overregulation from Brussels?

Viscount Younger of Leckie: It may not surprise the noble Lord that I do not agree with his approach. It is estimated that around 3.5 million jobs in the UK are dependent on trade with the EU. The UK exports a wide range of goods and services to other European member states, everything from cars, worth more than £13 billion in 2011, through music, which represents £1 billion and even more once related services, royalties and licences are included, to a wide variety of food and drink products, worth close to £10.5 billion. There is much to be lost if we leave the EU.

Lord Razzall:My Lords, if we take the follow-up question by the noble Lord, Lord Davies, and indeed, the Minister’s answer to the last question, does he not fear, realistically, that the uncertainty created by the Prime Minister’s commitment to a referendum in 2017 will risk reduced investment and employment in British manufacturing industry, particularly in the motor car industry, to which he referred?

Viscount Younger of Leckie: I do not agree with my noble friend, but I stress again that it is right to end the uncertainty of the questions that are persistently asked. My noble friend mentioned UK car manufacturers. They effectively saved £0.9 billion in 2009 by not having to pay the common external tariff to export to the EU. This equates to a saving of £1,100 per vehicle exported in 2009 to the EU. I stress that there are large figures involved in needing to settle the uncertainty.

Lord Soley: I put it to the Minister that he is not answering the question about the judgment of investors as a result of the uncertainty created by a referendum. Can we have his assessment of the impact of the uncertainty of a referendum on inward investment?

Viscount Younger of Leckie: I cannot give any specific figures on that, but I stress again that it is important to end the uncertainty. That is why my right honourable friend the Prime Minister has set out in the other place his stall in terms of how we go forward, including with a referendum.

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Lord Dobbs: My Lords, can my noble friend assist a simple soul? Am I right in believing that we run a substantial balance of payments deficit in our trade with the European Union? Does that not therefore mean that there are more jobs dependent on that trade in Europe than there are in this country?

A noble Lord: We’re in Europe!

Viscount Younger of Leckie: I do not agree with that particular approach. European markets count for under half of UK exports of goods and services. Seven of the UK’s top trading partners are EU member states.

Lord Reid of Cardowan: My Lords, multiple hypotheticals and transient variables seem the very essence of the Government’s policy on Europe. Avoiding those, will the Minister answer a factual question? When last year, in the middle of the eurozone crisis, I asked the Government whether there was not an approaching fork in the road, and whether they would envisage the possibility of a two-speed, or multi-speed, Europe, I was told that the Government did not envisage that under any circumstances. What happened to change their mind?

Viscount Younger of Leckie: The answer to the noble Lord’s question is that we are fully focused on staying within the EU. We do not see a two-tier Europe coming forward.

Lord Hannay of Chiswick: Can the Minister clarify another simple point? How does the announcement of a referendum in four years’ time, the result of which cannot possibly be predicted, remove uncertainty?

Viscount Younger of Leckie: The Prime Minister emphasised in another place that now was not the right time to hold a referendum, and that it would be right to hold a referendum after the next election—and after, we hope, the current EU crisis has abated.

Mental Health (Discrimination) (No. 2) Bill

Mental Health (Discrimination) (No. 2) Bill

Third Reading

3.06 pm

Bill passed.

National Health Service (Clinical Commissioning Groups—Disapplication of Responsibility) Regulations 2012

Motion to Approve

3.07 pm

Moved By Earl Howe

That the draft regulations laid before the House on 5 December 2012 be approved.

Relevant documents: 15th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 29 January.

Motion agreed.

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Companies Act 2006 (Amendment ofPart 25) Regulations 2013

Parental Leave (EU Directive) Regulations 2013

Enterprise Act 2002 (Part 8 Domestic Infringements) Order 2013

Motions to Approve

3.08 pm

Moved By Lord Popat

That the draft regulations and order laid before the House on 18 and 19 December 2012 and 10 January be approved.

Relevant documents 15th and 16th reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 6 February.

Motions agreed.

Enterprise and Regulatory Reform Bill

Order of Consideration Motion

3.09 pm

Moved By Viscount Younger of Leckie

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 7, Schedule 1, Clause 8, Schedule 2, Clauses 9 to 14, Schedule 3, Clauses 15 to 20, Schedule 4, Clause 21, Schedules 5 and 6, Clauses 22 to 24, Schedule 7, Clauses 25 and 26, Schedule 8, Clauses 27 and 28, Schedule 9, Clause 29, Schedule 10, Clause 30, Schedule 11, Clauses 31 and 32, Schedule 12, Clauses 33 to 35, Schedule 13, Clauses 36 to 45, Schedule 14, Clauses 46 to 50, Schedule 15, Clauses 51 to 53, Schedule 16, Clauses 54 to 56, Schedule 17, Clauses 57 to 64, Schedules 18 and 19, Clause 65, Schedule 20, Clauses 66 to 69, Schedule 21, Clauses 70 to 84.

Motion agreed.

Welfare Benefits Up-rating Bill

Welfare Benefits Up-rating Bill

Second Reading

3.10 pm

Moved By Baroness Stowell of Beeston

That the Bill be read a second time.

Baroness Stowell of Beeston: My Lords, the Bill before us is about securing a stronger economy for the future. Noble Lords are well aware of the challenge we currently face. We are dealing with a deficit which is unprecedented in peacetime. Back in 2010, we were borrowing £1 in every £4 that we spent, and interest payments were costing us £85 million a day.

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Baroness Anelay of St Johns: My Lords, a considerable number of Members of this House are leaving, but there are still some staying behind to take part who would like to listen to the Minister, who is trying to present the opening of this debate. I should be grateful if Peers leaving could do so quietly.

Noble Lords: Hear, hear.

Baroness Stowell of Beeston: I am grateful to my noble friend. Back in 2010, we were borrowing £1 in every £4 that we spent, and interest payments were costing us £85 million a day. We have begun to make progress on that deficit—it has since reduced by a quarter. But there are still difficult decisions to be taken if we want a stronger economy that delivers a better future for everyone. Let me be clear about that: everyone, all of us, whoever we are, deserves the chance to do the best for ourselves and our families.

Several commentators have said that we should look first to make savings from those with the broadest shoulders—the richest in society—and I am proud to say that we are. This Government’s plans increase the total tax contribution from the most well off. As a result of our actions, the richest pay more tax on capital gains, more stamp duty on their homes, more tax on their pensions and are less able to avoid or evade tax. The top 20% of households continue to make the greatest contribution towards reducing the deficit. The Autumn Statement raises more than £1 billion pounds a year from the richest and more than £8.5 billion over the forecast period. Overall, the richest will pay more in tax during this Parliament than under the previous Government’s tax plans.

However, as we seek to reduce the deficit and retain credibility with financial markets, we cannot ignore the welfare budget. From 1997 to 2010 spending on working age welfare increased by some 60% in real terms. Today, it accounts for £1 in every £8 that the Government spend. The Institute for Fiscal Studies has said:

“When cutting public spending dramatically to help reduce an unsustainable budget deficit it is almost inevitable that spending on benefits and tax credits—which account for 30% of the government’s total budget—will be targeted”.

But in seeking savings from welfare, we have always sought to strike a balance, and that is true of this Bill.

The Bill provides for most working-age benefits, tax credits and statutory payments to be subject to a 1% increase in 2014-15 and 2015-16. I will not go through the full list but it is set out in the Schedule to the Bill and the Explanatory Notes. As a result of this, the Bill will save £1.9 billion in 2015-16. We have also retained safeguards for a number of key benefits, which will not be subject to the provisions in the Bill.

For pensioners, we are maintaining our commitment to the triple lock, a commitment which will see the basic state pension rise by earnings, prices, or 2.5%, whichever is highest. In 2013-14, when both prices and earnings growth are below 2.5%, we will ensure that the poorest pensioners will see the same cash increase by over-indexing the guarantee element in pension credit, which would normally rise with earnings. In addition, for disabled people and carers, we have

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committed to uprating benefits covering additional needs to the costs that they incur because of their disabilities in line with inflation. The protection applies to disability living allowance, attendance allowance, carers allowance, the disability premiums in working age benefits, the disability elements in tax credits, the carer premium and the support component of the employment and support allowance. Those are not included in this Bill: they are protected. We have sought to find a balance between making necessary savings and protecting those who are least able to increase their spending power.

We have also sought to strike a balance between supporting those on benefits while containing the costs of the welfare system. Let us not forget that most people have faced significant pay restraint in recent years. Looking at average incomes over the past five years, including those in low-paid jobs, those in work saw their incomes rise half as quickly as those on out-of-work benefits, at a rate of 10% compared to 20%. Let us not forget that public sector workers have had their pay frozen and then increased by just 1%. Indeed, even with the 1% increase on these benefits, on current projections out-of-work benefits will still be at a higher level in 2015-16 than if they had been uprated by average earnings growth since the financial crisis began. While people want to know that the welfare system is there for them in hard times, when they need to draw on it, they also want to be confident that it reflects the budgeting decisions that people have to take in work and that it incentivises people to find and take work.

By setting out clear savings commitments in legislation, the Bill also seeks to give certainty, both to taxpayers and to the markets, that this Government are committed to securing fiscal credibility in the years ahead, and it is “the years ahead” that I am particularly concerned with. Investing in credibility and stability is an investment for the long term, and it is, of course, a means to an end. Yes, we have to rebalance the public finances, but not simply so that we can point to a nicely balanced budget in the ledger.

In my eyes, the real end is ensuring that the next generation can benefit from a stable and growing economy, one where they are able to secure a job, become productive members of society and get on in life. I do not believe we can achieve that end without taking these difficult decisions.

Noble Lords need not look far for reassurance that this Government’s approach is the right one. In Spain and Greece, one in every two young people in the labour force is unemployed. Italy and Portugal are not far behind. I do not pretend that unemployment is not a problem in this country, but the decisions that we have taken to restore the public finances and the credibility and stability we have secured with the financial markets have been key to securing the stability of our own labour market. Over the past year, the UK employment rate has grown faster than any other G7 country. Employment in the private sector is up by more than 1 million since the election, while the last quarter saw further improvement in youth unemployment, a fall in long-term unemployment and a fall in unemployment overall. For me, this underlines the

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critical importance of the Government’s fiscal plans. We are trying to repair a damaged economy so that we can secure something that makes a real difference to people’s lives—a sound economy backed by an expanding labour market for them and for future generations.

But a sound economy has to go hand in hand with a strong social settlement. We can get the economy going again, but we will have failed if we still have a welfare system which does not make work worth while. So at the same time as we are restoring the public finances, I would ask your Lordships to remember that we are working to restore the welfare system as well. This year will see the introduction of universal credit, an historic change that will create a welfare system that is simpler, more effective, and designed to ensure that work pays. We expect some 3.1 million households to gain from the move to universal credit, on average by £168 per month. This is a progressive reform. Around 75% of the households that gain are in the bottom 40% of the income distribution. Overall, we believe that universal credit could lead to the equivalent of up to 300,000 additional people in work through improved financial incentives alone.

It is important that we see this Bill in its broader context. It enables the Government to make savings that are crucial to reducing the deficit and to maintaining our credibility with the financial markets while protecting those on fixed incomes or with additional needs. But at its heart it is a Bill for the long term, one that plays a crucial role in repairing the public finances, and so one that is an investment in a sound and stable economy in the future, and a future that is better for everyone. It is on that basis that I commend this Bill to your Lordships’ House.

3.18 pm

Lord McKenzie of Luton: My Lords, I start by thanking the noble Baroness, Lady Stowell, for her explanation of this Bill, but let me say at the outset that we consider this to be a bad Bill that should not reach the statute book, and we have much to do in Committee.

The Chancellor of the Exchequer has said that it is, in his terms, shirkers who will be affected by these cuts to tax credits and benefits, and of course uprating by less than the rate of inflation is a real-terms cut. However, analysis now shows that two-thirds of those affected by this Bill are actually in work, striving to rise above poverty levels and support their families. The Children’s Society shows that up to 40,000 soldiers, 300,000 nurses and 150,000 teachers will lose out as a result of this Bill. Despite what we are told, disabled people are not properly protected. The Bill penalises working mothers and punishes children, trapping them in poverty. Two-thirds of those hit by cuts to tax credits and benefits are women.

There could be no starker example of this Government’s values than the fact that at the same time as they are introducing this Bill, they are seeking to give 8,000 millionaires an average tax cut of £2,000 a week. Compare this with the 71p increase per week for somebody on JSA. We will seek to ensure that the Bill does not proceed while these tax cuts are being implemented. It is anyway entirely unnecessary. If the

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Government are so determined to uprate most benefits and tax credits by just 1%, they can do it by way of the annual uprating process, precisely as they are doing for 2013-14.

Those affected by the Bill are having to shoulder the burden of the Government’s continuing economic failure in jobs and growth. The 2012 Autumn Statement made abundantly clear that with a shrinking economy last year and growth forecasts downgraded again for this year, next year and every year up to 2016, the Government are also failing to tackle the deficit and debt.

The Chancellor has been forced to announce that he will not meet his fiscal rule to get the debt down by 2015, with the result that the Government are borrowing a staggering £212 billion more than they planned. Nearly 1 million young people are out of work and the claimant count is forecast to be 275,000 a year higher in 2015. The OBR expects the economy to be 3.6% smaller in 2016-17 than it thought it would be just a year ago.

However, the Government still will not change course. Nothing in this Bill will help growth and jobs. Nothing in this Bill will help build a stronger economy. Everything in this Bill will contribute to depressing demand and putting more pressure on hard-pressed public services. There is no recognition that low-income families have high marginal consumption rates, so restricting their income will impact very directly on demand in our economy. Therefore, the poorest are being asked again to bear more of the burden. The IFS says that this will include 7 million working households, who it calculates will lose on average £165 a year.

Taken together with other changes in the Autumn Statement, the real income of a one-earner family will reduce in real terms by more than £500 by 2015-16. The Government’s own impact assessment shows that the average loss in income is higher for families in the lower deciles than for those in the higher deciles. Those at the bottom lose £4 to £5 a week; those at the top lose £1 to £2 a week.

As USDAW put it in its briefing, this Bill is another blow to working families. Compared with a CPI uprating, the Bill will cost a working family on a modest income nearly £800 a year. We know from the Minister herself —Esther McVey—that it will result in an extra 200,000 children being pushed into poverty on top of the 800,000 the IFS already estimates have entered that state due to the coalition’s policies. This is why we will demand that the Government produce a comprehensive assessment of the Bill’s effects on child poverty.

Any claim that increases in the personal tax allowances will compensate low-income working families for such losses does not bear examination. Many will not reach the tax threshold, being in part-time jobs at the minimum wage. For those who do, a tapering away in housing benefit and council tax support will negate much of the suggested advantage.

Of course, we still do not have from this Government a cumulative impact assessment of all the changes made to tax credits and benefits since May 2010—an

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issue so brilliantly pressed by my noble friends Lady Hollis and Lady Sherlock in a recent debate. When introducing the Bill, there was not a scintilla of recognition by the Minister of how much the living standards of the poor have already suffered under this Government. There was no recognition either of the tsunami of cuts that are about to engulf hundreds of thousands of our fellow citizens in the form of the bedroom tax and local council tax support schemes.

I accept, as the Minister said, that the Government have not ignored the welfare budget. Under it, they have already taken £20 billion from the poor. We are told that it is necessary to legislate for the 1% restriction to provide certainty for the taxpayer, the markets and claimants. These are entirely specious assertions. Taxpayers will not have certainty about the costs of social security without knowing claimant numbers, which of course are heavily dependent on the growth that this Government have failed to deliver.

It is frankly ludicrous to argue that the markets will take fright in respect of the amounts involved if you have just declared your intentions to uprate by 1% rather than enshrine it in legislation for two years in circumstances where your public sector net debt is heading north of £1.4 trillion. In any event, the market knows full well how determinedly brutal you can be when it comes to cuts.

When it comes to claimants, I am sure that most would forgo the certainty of a 1% increase—a maximum of 1%—for the prospect of a fair review on an annual basis, because what this Bill is doing is placing inflation risks with the most vulnerable members of society. Inflation just three years out is difficult to predict, and should it, contrary to current expectations, dip below 1%, the Government can pocket the benefit. Are the Government really saying that whatever the level of inflation, say in year three, they will allow any level of cut to be visited on the nation’s strivers? The justification for the 1% is that benefits have been rising at a faster rate than earnings over the past few years—we heard that from the Minister—but this means that the families receiving in-work benefit are getting a double blow from the Bill. If you look at the longer trend—the DWP gave us the figures just this morning—average earnings have increased at a much faster rate than benefits over the medium and long term.

However, the reality is that this Bill is not about shoring up the markets. It is about trying to shore up the dwindling political standing of the Government. It is about trying to foster a political climate—a party-political dividing line—that says that recipients of tax credits and social security benefits are feckless and workshy, and stay in bed while others go out to work for a living. The Government, of course, are only for the latter.

I was struck by a contribution when the Bill was debated in the Commons, from which I shall briefly quote. It was stated:

“But the insidious aspect of the Bill is that, in seeking to open up a philosophical divide of that type, it becomes not an issue of political leadership, but of political pandering to some of the fears, insecurities and downright prejudices that can be stoked up in society—the ‘us and them’ mentality and the sense of resentment

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and envy. When people start playing fast and loose with those factors—and we have seen early examples against the backdrop of this legislation in the last week to 10 days—they are following a very risky strategy indeed”.—[

Official Report

, Commons 21/1/13; col. 86.]

That was Charles Kennedy. That any Government should seek to prey on the lives of poor people in this way for party advantage is disgraceful. The ploy is anyway unravelling. Of some 14 million working-age households with someone in work—strivers in anyone’s language—around half are disadvantaged by this Bill.

However, it is not only people in work who are strivers. What about a lone parent struggling on income support to nurture a young child to be part of a responsible future generation; or someone on income support because they devote every waking hour to care for someone, saving the state hundreds of thousands of pounds over the years; or someone on JSA who has been made redundant through no fault of their own, desperate to get back into work? These are strivers too.

Any claim that disabled people are being fully shielded from the cuts in this Bill are of course false. Disabled people in the work-related activity group—by definition those found not fit for work—will have their ESA uprating capped at 1%, thereby losing, according to the Disability Benefits Consortium, £87 a year. Those in the support group fare little better, with the support component being out of scope but the core component being subject to the cap. This, at least, we will seek to address in Committee. Of course, disabled people will miss out not only on this basis. Other benefits on which disabled people are disproportionately likely to rely, such as housing benefit, will also be restricted. We will seek, in Committee, to reverse the real-terms cut in statutory maternity pay. That would reverse just part of the losses that working women are suffering from cuts to maternity pay, pregnancy support and tax credits. The House of Commons Library research shows that low-paid new mothers are losing out to the tune of some £1,300 because of this.

This is a wretched Bill with the wrong priorities. It does nothing for jobs, which is why we will press that it not enter into force until a compulsory jobs guarantee can be introduced, focused on the long-term unemployed and paid for by restricting pension tax relief on high earners. The injustice at the heart of the Bill is another attack on the poor, including the individuals and families who subsidise all of us because they work for low wages, meaning that we all benefit from cheaper goods and services. They should not be treated in this way.

If the Government have their way on this Bill, it will mean another spur to poverty, more food banks, more payday loans, more households having to choose between heating and eating, and more despair for those striving to do the right thing. We have a duty to stop it.

3.31 pm

Lord German: My Lords, it will not surprise the House that I start from a different place from the noble Lord, Lord McKenzie. I will refer later to the use of the word “language”. I hope that your Lordships’

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House will join us in saying that we should not use language that tries to segregate different groups of people. I shall illustrate that later. My starting point in examining this Bill is to ask whether it meets the policy objectives that it sets for itself and whether it is a proportionate response to the problem that it attempts to solve. As the principal policy objective that it seeks to fulfil is to make an impact on the underlying structural deficit that this country faces, it is an impossible analysis if we do not start with an examination of that factor.

In 2010, the Government set themselves the objective of eliminating the inherited structural budget deficit by the end of this Parliament—that is, by 2015. However, external circumstances, such as the problems within the eurozone, intervened which made that a much more difficult task to accomplish. So the Government took the decision to slow down the elimination of the structural deficit from five years to seven years, to 2017-18. Of course, they could have chosen to meet their original target date by imposing even more challenges to government expenditure—by increasing the tax take and by digging deep into the health and education budgets, and presumably further into the welfare budget as well. They chose not to do so. The consequence of that is a need to take further steps in budget reduction and this measure does that. It is aimed at 2015-16, the last of the financial years that will be determined before the next general election.

My first point is that sticking to the original timescale for deficit reduction would have meant a much more challenging debate than the one we are having today. Clearly, many noble Lords are concerned about the welfare budget reductions contained in the Bill. I can understand that concern. It is never easy reducing welfare payments; it is very uncomfortable and something which gives me concern as well. However, it would have been a lot worse if the Government had not slowed down the deficit reduction programme.

There are, and will continue to be, very difficult decisions to be made, and this Bill is one of them. However, those who object to the budget reductions in the Bill must say whether they are in favour of either a further extension of the already extended deficit reduction programme—slowing it down even further, going beyond the planned seven years and increasing the level of borrowing substantially—or taking money from some other source. It would be helpful to know where noble Lords stand on this matter. I listened very carefully, but I was unable to detect where that money might come from. The Bill cannot stand alone in some sort of splendid financial isolation. When there are hard choices to be made, it is important to know whether others are prepared to face up to them. There are also further tax measures to come if the Government are to meet the new seven-year timetable. We can take some comfort from the IFS Green Budget scrutiny, which, taking this Bill into account, determined:

“The whole set of tax and benefit changes introduced between the start of 2010 and 2015-16 will hit the richest households hardest”.

My second point is about proportionality. Many noble Lords will recall debates in this House where the figure of an additional £10 billion reduction was bandied about. The Chancellor of the Exchequer said last year that,

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“we will have to find greater savings in the welfare Bill. £10 billion of welfare savings by the first full year of the next Parliament. Iain Duncan Smith and I are committed to finding these savings”.

However, the cumulative figure that this measure provides is not £10 billion but £3.6 billion—and that includes this year’s uprating order. That accords with the approximately £1 in every £3 of public expenditure that goes on welfare. Therefore, it could have been far worse for the welfare budget.

I am pleased that arguments made by those on the Liberal Democrat Benches have been taken on board by the Government. There will be no capping of child benefit at two children; there will be no cessation of housing benefit for the under 25s; and there will be no absolute freeze on working-age benefits. Thankfully, that is not the trajectory of this measure.

Spreading the burden across the years and taking relatively small amounts of money from a large number of people is a sensible approach. A lot of people paying a little is better than the alternative of a small number of people losing a lot of money in a single year. Here, I am talking about the welfare budget. Some have suggested taking out child benefit and tax credits from the Bill, but this would wipe out £1.5 billion of the £3.6 billion of savings, which would once again have to be found elsewhere.

Given the budget restraint, the Bill takes a sensible approach. It is sensible because, since the financial crisis, out-of-work benefits have risen twice as fast as average earnings—by 20% compared to 10%. For many, the effects will be short-term, as most people out of work find work again within three to six months. Also, the Government have capped public sector increases at 1%, so there is also an element of fairness to the measure. Besides, the shadow Secretary of State for Work and Pensions recently said that he wished to see incomes rise faster than benefits.

This measure is temporary. It is time-limited to end in the financial year 2015-16. Unless changed again by an incoming Government, the present arrangements for annual uprating will apply once more. However, there are some rough edges to the Bill. I hope that the Government will explain and debate these in detail in Committee. It is right to have sweeping exemptions for pensioners, the sick and the disabled—but some anomalies will need explanation, justification and perhaps amendment.

I said that I would say a little more about the language used in discussions and debates on these matters. The word “shirkers” has been used already in the debate. I do not find it helpful. It is not just one side who are saying this. According to the Labour Benches, it was the Chancellor who used the word “shirkers”. However, the word was also used by the shadow Secretary of State for Work and Pensions in a speech last year at the London School of Economics. I hope that noble Lords from all parts of the House will support the notion that we have to be extremely careful not to negatively categorise people. It does no good at all to use inflammatory language to distinguish between those in work and those out of work. The benefits trap itself is to be deplored. That is why there is so much to be gained by the new universal credit. The principal

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message I take from this is that as a country we must offer a helping hand, rather than deprecate the people who are trapped by the current benefits regime, which soon will be radically altered.

I want to say a word about child poverty, because I read so often of the figures produced by pressure groups that have written to many noble Lords in relation to this Bill. The child poverty measure, as I discovered when there was a committee inquiry in the National Assembly for Wales, is very difficult to sustain both internationally and in this country. In the first year of this Government, the numbers in child poverty—according to the international measure—fell substantially in the United Kingdom. That is because the median is used as the measure in this country. It is time that we had a new measure if we want to see what is happening in respect of children in poverty in this country and in other countries. I hope that noble Lords from all sides of the House would agree that continuing to use the current measure is no way to examine this issue, despite the fact that it substantially benefits the Government’s argument.

Finally, I hope that the Bill puts to an end any further reductions in the welfare budget before the next general election. Of course, there may be minor, necessary adjustments, but these past few years have really been a difficult time, with very hard decisions having to be taken about the size of the welfare budget. I hope that, in his response, the Minister will offer your Lordships some reassurance that this area of spending reduction has now reached its conclusion for the continuing length of this Parliament.

3.41 pm

Lord Adebowale: My Lords, I declare my interest as chief executive of Turning Point, an organisation that works with many of the people who will be affected by this Bill, should it become an Act. I felt compelled to join in this debate because many of the people who stand to be affected are people with whom I and my organisation work; they are some of the most vulnerable in society. It is important that we remind ourselves of this during the course of the debate.

In his opening remarks, the Minister made the point that the rich were going to pay more and carry a greater burden than the poor. However, it is the poor who feel the impact more than the rich. I refer to an article I once read by the sister of the Mayor of London. She pointed out that during times of austerity, the rich of course feel the burden of cuts, but generally the burden is restricted to deciding whether they should take one or two cooks on holiday with them this year. We should think about this Bill in that context.

I would like to raise a few points about the Bill’s potential impact on certain groups and make a few further points about fairness and public attitudes. Those who stand to be impacted include many working-age adults; many people accept that now as a given. Many of those with complex needs and challenges are the people supported by Turning Point. We work with people who are experiencing challenges such as substance abuse, mental ill health, learning disabilities, employment difficulties or a combination of some or all of these. I have said in earlier debates that I have yet to meet any one of our clients who does not want to work.

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Around half of those who used Turning Point’s integrated, complex-needs services last year have already had benefit and housing difficulties. They have had problems accessing disability benefits despite physical and mental health problems and have been left with debts due to lengthy appeals processes. The point is that people are already struggling due to changes that have begun to affect them and there are still other changes that will start to hit from April.

I got some advice from Crisis, an organisation that is well respected across the House. It gave me an example of a young man called Russell, who had been urgently looking for a shared property in London since September, but did not have the deposit that nearly all landlords require. His rent for a small studio flat was, until September, paid by housing benefit. However, when the changes to the shared accommodation rate kicked in, his housing benefit was slashed from the £180 a week he required to £86 a week. As a result, he had to drop out of his computer course to look for somewhere to live and has accumulated nearly £3,000 in arrears and been served an eviction notice. Homelessness was a real threat for Russell. I am really pleased to report that this morning, I was told that he has just managed to find a new place to live, but has no idea how he is going to pay back the debt accumulated over that period.

The Bill has been described as a real-terms cut with the IFS estimating that, given the current forecasts for inflation, it could amount to a cumulative 4% real cut in the benefits affected. In reality, we do not know what its impact will be as it depends on future inflation rates. The IRS states that this will expose some of the most vulnerable to inflation risk.

I recognise and welcome the fact that disability benefits and carer’s allowance are exempt from the legislation, but the problem remains that the Bill will apply to the main rate and the work-related activity group component of employment and support allowance. According to Disability Rights UK, all of the 991,000 disabled people receiving ESA in the support group and work-related activity group will experience the impact of a 1% cap, and it estimates that that will amount to a loss equivalent to a loaf of bread and a pint of milk per week, or £87.65 a year. That does not sound like a lot, but I come across people whose lives are hugely affected by the ability to afford that loaf of bread and that pint of milk each week.

The Government talk about fairness, which is a big part of their motivation for reform. The debate about skivers versus strivers has been played out a lot recently, and whether it is helpful or it contributes towards polarising opinion and increasing stigma is perhaps a matter for another discussion. Still, the employed and the unemployed cannot be compared with one another so simply. For a start, many working people are in receipt of benefits. We know from recent data that households with at least one employed adult have accounted for 93% of the increase in the number of housing benefit claims in the past two years and that there are around 3.6 million working households already living on an economic “cliff edge” who could be squeezed further by this Bill. The Children’s Society has calculated that the Bill will mean that by 2015, a

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lone parent with two children on a weekly income of £530 would lose £424 a year, and a couple with two children on a weekly income of £635 would lose £351 a year.

Public attitudes to welfare spending are often impacted. I think that the prejudices which have been mentioned by contributors to this debate are based on the fact that the public do not often understand what the actual impact of this Bill will be on individuals. An argument used in favour of reform is that the welfare bill accounts for a quarter of total government spending. Last year’s data show that the DWP does indeed account for 23% of all public spending, or £166.98 billion. However, of the £159 billion of that sum which went on benefits, 47%, or around £74 billion, went on state pensions compared with JSA and incapacity benefit, which saw spending of approximately £4.9 billion each. Despite this, a YouGov poll recently commissioned by the TUC has found that on average, people think that 41% of the entire welfare budget goes on benefits to unemployed people. The same poll also suggests that support for this Bill actually depends on the level of understanding of it, as I have already mentioned. The Government have a duty to educate the public on the realities of welfare benefits and the impact on the poorest in society as opposed to being tempted to take advantage of ignorance of this matter.

The Government want to improve fairness and incentivise work, but welfare reform cannot be tackled in isolation from other factors such as the labour market and current inequalities. Despite it being a commonly held view, it is difficult confidently to identify evidence of widespread welfare dependency and intergenerational worklessness. The Joseph Rowntree Foundation and the University of Bristol recently found that only a very small minority of households, some 15,350, have had two or more generations who have “never worked” and of those, many of the second generation have been out of work for less than one year.

Policies that change behaviour are a risk when the roots of the problem go beyond behaviour. Just one worrying trend is the 109% rise in the number of people being helped by food banks, as reported recently by the Trussell Trust. While some people think that food banks are a good idea, research in Canada seems to indicate that the level of nutrition provided by such food is very low compared with the ability to choose your own produce. I am worried that the impact of welfare changes, spending cuts to services and rising living costs could contribute to a further increase in the use of food banks. It would be interesting to know whether Ministers think that an increase in the use of food banks would be a credible and useful outcome of this Bill.

I worry that the Bill risks pushing vulnerable people, including disabled ESA recipients, the working poor and people such as Russell, further away. I would like the Minister’s response to perhaps provide some advice for the Russells of this world—he is not alone and represents maybe a few hundred thousand people—as to what they should do when faced with the impact of the proposed Bill.

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3.50 pm

The Lord Bishop of Leicester: My Lords, it is a privilege to follow the noble Lord, Lord Adebowale, who speaks with real authority and experience in this matter and who came to speak in Leicester this time last year to a group exploring the public responsibility for the poor.

It seems to me that, from time to time, it falls to these Benches to raise questions about the moral responsibility of this House and perhaps today is one such occasion. I want to ask what is the fundamental purpose of the Bill before us. The Minister has asserted that it is to achieve a stronger economy for the future. If that is the case, presumably it is designed to achieve short-term savings in response to a present budget deficit. However, because of its long-term effects, it looks like part of an ideologically motivated attempt to alter the very nature of the welfare state. If that is the case, we must ask ourselves what is the limit of our collective responsibility for the poorest in our society. I believe that there is confusion in this Bill about that limit in at least three key areas.

First, there is impact of the Bill on working families. One of the main arguments used to justify the Bill is that it is unfair that out-of-work families should see their benefits rise at a faster rate than hard-working families who are facing a squeeze in their wages. Others have made this point already. However, this claim is both inaccurate and unhelpful. It is inaccurate because the fact is that working families, and low earners in particular, are among those worst affected by this Bill, as we know. Working tax credit, one of the benefits included within the cap, is only available to working households. Other benefits that are also included, such as child benefit and child tax credit, are available to both working and non-working families. The House of Commons Library has estimated that if only out-of-work benefits were subjected to the 1% cap, 80% of the proposed savings would disappear. According to the Resolution Foundation, 60% of the impact of the Bill will fall on working households. In 2015-16, the 1% uprating policy will take a total of £2.8 billion out of the pockets of the very people who the Government should be seeking to support. More than at any other time, these families are relying on tax credits and other benefits to help compensate for the squeeze in their earnings and the rising prices of essentials.

As other noble Lords have mentioned, it is also unhelpful to set up a false distinction between in-work “strivers” and out-of-work “shirkers”. All of us who are actually in touch with the effects of this Bill in local communities know that many are losing their jobs through no fault of their own. Contrary to ministerial rhetoric, the vast majority of unemployed people want to work: 70% of unemployed people find work again within a year and only a tiny minority of workless households contain two generations who have never worked. As if it is not enough to lose your job, some of these people are now being vilified and impoverished.

Secondly, the Bill will have an adverse impact on the population at large. In total, it is estimated that 6.4 million families with children will be affected. That is 87% of all families with children and 95% of lone-parent families with children. While nearly all families will be affected by this policy, it is the poorest families who

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will bear the disproportionate share of the burden. The Government’s own impact analysis reveals that two-thirds of the cost of this measure is from the bottom third of the income distribution; only 3% is from the top third. Surely this is completely inconsistent with the Prime Minister’s statement that,

“those with broader shoulders should bear a greater load”.

I am not afraid to say that I think this is wrong.

Of course, this Bill comes on top of all the other welfare cuts that are disproportionately affecting low-income families, such as cuts in disability benefits and in the local housing allowance. I see at first hand the effects of these in my own city of Leicester, where the bedroom tax will affect 13% of tenanted households; the benefit cap will affect 585 households; and cuts in council tax support will affect 16,000 households, which will have to pay some element of council tax for the first time.

The Institute for Fiscal Studies estimates that the combined effect of all the tax and benefit changes introduced between 2010 and April 2015 is to reduce the incomes of the poorest fifth of families with children by about 7%. As others have said, the inevitable impact of this policy will be a further increase in child poverty. The Government’s own estimates are that this Bill will push 200,000 more children into poverty. Even before this measure was announced, the Institute for Fiscal Studies was already estimating that relative child poverty was set to increase by about 400,000 between 2010 and 2015. In Leicester, 32% of children are already in poverty, well above the 21% national average. This policy will substantially increase that number. I ask the Minister: what are the Government doing to reduce the impact on these 200,000 children?

Finally, I fear for the long-term implications of this policy. This Bill breaks the historic link between benefits and price inflation, which will have implications not just over the next three years but in 10 and 20 years’ time. We have not had enough public and political debate about this. The cumulative impact of this policy is a substantial erosion in the real value of benefits for the poorest working-age households, which is already considerably below what most people agree is necessary to achieve an adequate standard of living. Families that are already in a financially precarious position due to debt problems, lack of family support and so on will be particularly vulnerable, pushing many into unmanageable debt and triggering mental health problems, homelessness and family breakdown.

The changes to uprating policies announced by this Government already mean that the level of means-tested support will be 7% lower by 2016-17. If inflation turns out to be higher than currently forecast, the impact on living standards will be even greater—a serious risk that does not appear to have been adequately considered by the Government. Every unexpected increase in food prices or fuel costs will hit the pockets of those least able to bear the cost. What flexibility will there be to support vulnerable families if inflation rises much higher than the 2.2% measured by the consumer prices index?

If we wind the clock forward, what kind of safety net will be left in 10 or 20 years’ time? I fear that we are heading in the direction of a United States-style welfare

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system, where healthcare provision and pensions are large and protected but working-age provision is less generous and more stigmatised, barely providing enough for people to live on without relying on charitable handouts, where visits to the food bank are not an emergency response to an economic crisis but an integral part of the welfare state. Is this really the kind of society that we want to live in?

This Bill will not help the well-being of the most vulnerable in our society. It will depress hard-working families even further, remove much needed support for the vulnerable and unable to work, and potentially take us in the wrong direction for a generation, condemning countless children to poverty. It is a proposal that I cannot support.

3.59 pm

Lord Bates: My Lords, as I listened to the right reverend Prelate, I struggled to think of one point in this Bill on which this House might be unanimous, but I venture that it is this: that the provisions of the Bill are unwelcome. However, the question was never whether they were welcome; it was always whether they were necessary.

The roots of this Bill in this Parliament lie in the bill for the previous Parliament: the doubling of the national debt and the biggest budget deficit in the developed world and in our own peace-time history. From 2003 to 2010, the previous Government spent £171 billion on tax credits, contributing to a 60% rise in the welfare bill, which was unsustainable. I have never quite been able to get to grips with the idea that profligacy is compassionate and that sound management of your finances is somehow hard-hearted and uncaring.

Other myths that have been put forward surround language. “Shirkers”, for example, is an expression that I would never use, having grown up on Tyneside with many people who found it degrading to be in receipt of government aid through welfare rather than having the dignity of earning a salary. I never use that phrase, but, of course, it was never this Government who started its use; it was Mr Liam Byrne—to whom I shall refer a couple of times in this speech. He said at the Labour Party conference in September 2011:

“Let’s face the tough truth—that many people on the doorstep at the last general election felt that too often we were for shirkers not workers”.

That was not a Conservative statement. In a speech given by Mr Byrne at the London School of Economics in January last year, he said:

“Labour is the party of hard workers not free-riders. The clue is in the name. We are the Labour Party. The party that said that idleness is an evil. The party of workers, not shirkers”.

It is important when we have a debate of this nature, which is clearly highly charged and emotive, that we correctly ascribe the language being used.

Let us place the proposed savings that this measure will bring about in some sort of context. We are talking here about proposed savings in 2014-15 of £1.1 billion, rising to £1.9 billion in 2015-16. That is 1% of the £117 billion bill for social welfare, excluding pensions and sickness. Another argument used is that this is somehow a pernicious measure which seeks to attack the poor while helping the rich, yet the argument

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used about higher-rate tax cuts is worth further examination. Higher-rate taxpayers will pay more tax to the Government in every single year of this Parliament than they paid in any single year of the previous Parliament. The increase of the higher rate of tax to 50p in the pound came into effect on 6 April 2010. If ever there was deathbed conversion on the part of the previous Government, that was it. In 13 years, they did not put up the higher rate of tax; it came into effect two days before the Dissolution of the previous Parliament. We are moving forward and saying that you will pay more through capital gains tax, more through the reduction in the pension tax relief threshold, more through the freezing of inheritance tax, which will come later, and in a number of other ways.

Therefore, the point that the Government are focusing on fairness in restoring the public finances is an important one. For example, changes in child benefit will mean that those who earn salaries over £50,000 will progressively lose their child benefit, which has widespread support as being fair. The raising of the personal allowance has halved the tax bill of someone who is on the minimum wage and taken 2.2 million of the poorest working families out of tax altogether. The state pension has risen from £97.65 in 2010 to £110 per week in the current year, including one of the largest rises in the level of the state pension ever in 2011.

There is another crucial element, which is reducing the welfare dependency culture in the UK, which has trapped millions on welfare and is a huge waste of human potential. Between 1997-98 and 2010, while average earnings increased by 30%, tax credit spending increased by 340%. The result was that by 2010, 90% of all workers were eligible for some form of welfare.

That leads me to another point on which I should like to press my noble friends on the Front Bench a little further. Given the opportunity, I will return to it in Committee. With the introduction of universal credit, we will have a system where, no matter what the salary of the job, you will always be better off in work by a straight line table of 65p in the £1. It is very important that people should always be better off in work. That is one of the principles at the heart of this reform. However, in the debate on 17 January led by the noble Baroness, Lady Hollis, which I guess was a bit of a forerunner of this debate, one of the issues that I raised was the living wage. I should like to explore it further.

I followed it up in a Question for Written Answer, in which I asked what would be the effect on the bill for social security benefits of raising the minimum wage to the living wage. If the argument, which I fully support, is that we want to reduce welfare dependency, then whether that welfare dependency comes through levels of benefits or inadequate levels of income, it needs to be treated exactly the same. The Answer was:

“The Government support the idea of a living wage and they encourage businesses to participate. However, requiring employers to pay a living wage higher than the national minimum wage could be burdensome to business and damage the employment prospects of low-paid workers … In the absence of evidence on the living wage’s adoption by employers and the resulting effect on employment levels and patterns, it is not possible to estimate the net effect on income tax and national insurance receipts, or on social security benefits”.—[Official Report, 29/1/13; col. WA315.]

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On the first part of the Answer, I would say that if it was the case that the minimum wage destroyed jobs, why have we continued to increase it from £5.93 in 2010 to £6.08 in 2011 and then to £6.19 per hour in 2012? Presumably, we accept that it does not destroy jobs.

When it comes to calculating the cost, Her Majesty’s Treasury seems unable to estimate it, but the Resolution Foundation has estimated that the living wage would introduce gross savings of £3.6 billion in increased tax revenues and a reduction of £1.1 billion in tax credits and means-tested benefits—a not insignificant sum, as it is the same as would be yielded by the 1% cap on welfare increases over the next three years.

I therefore encourage my noble friend to reconsider the issue of the living wage. As a Conservative, I think that we should help companies to create wealth and jobs through lower taxes, not by subsidising low pay. That is worth looking at. It would be entirely in keeping with the principles of the Secretary of State for Social Security and, I am sure, the Chancellor of the Exchequer, and I would support it. That would show that we are on the side of low-paid employees who are struggling to get on in life and whose contribution and effort we respect and admire.

4.09 pm

Baroness Hollis of Heigham: My Lords, normally one can say something halfway decent about some aspect of any social security Bill. I think that for the first time in 20 years in your Lordships’ House, I can find nothing good to say about this Bill at all—nothing. It is simply a lock-in cuts Bill which, to save £3 billion, will send 1 million poor children into deeper poverty by 2020 so that the better off among us, including myself, are spared a tax rise while millionaire earners have a hefty tax cut that is, curiously, also worth £3 billion.

Why do we oppose this Bill? It is simple, really. First, as my noble friend Lord McKenzie said, it is entirely unnecessary. We have always had annual up-ratings to respond to inflation; we now have a 1% rise for the forthcoming year and a Bill, costing many hours of parliamentary time, continuing it for a further two years. Why? The only defence offered by the rather fragile impact analysis is “certainty” for the financial markets, the public, and recipients themselves. Certainty, my Lords? Even if the Government cruelly ignore inflation, which the OBR believes will hit nearly 4% by 2015-16, benefit spend will still depend on the future number of claimants as well as on the level of their benefit. Exactly how can the Government give certainty to the markets and, that nice touch, certainty for the recipients, who will no doubt be grateful to learn that their benefit cuts are guaranteed for the next three years? No, the Bill is to lock in these benefit cuts for the poorest—to take it off the agenda, so to speak—in preparation, I do not doubt, for further cuts still to follow.

After all, if our solicitous concern for the markets and the public was driving this Bill, we would offer the same certainty to taxpayers for the next three years. There would be frozen tax allowances, so no more

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Lib Dem raising of the thresholds with the very real uncertainty that causes for NEST, auto-enrolment and, no doubt, the markets. There would be frozen tax rates, so no pre-election handouts. No, the Chancellor wants to lock the poor into their cuts, while being free in an election year to adjust the taxes that fall on the rest of us.

Secondly, the spin surrounding this Bill is deliberately and unpleasantly misleading, suggesting that these cuts fall on the undeserving poor, so that is all right then—the ones with closed curtains. It is not all right but, in any case, it is completely untrue. We had the distinctly ugly spectacle of the Iain Duncan Smith press releases while this Bill progressed through the other place, implying that these cuts were morally as well as financially desirable because they would help to wean the poor off benefit dependency, which the noble Lord, Lord Bates, cited today, as though the recipients were addicts waiting for their next benefit fix rather than loving and responsible parents trying desperately to feed their children. That was while IDS knew, as we all know, that two-thirds of these capped benefits are going to people in work on low pay with children to support. IDS smeared every poor family in this land, and I had thought better of him.

Why do we need these top-up benefits, such as housing benefit and tax credits for people in work? We all know why, don’t we? It was because while a wage may be acceptable for a single man in a full-time job on minimum wage, that wage will be hopelessly inadequate for a family man with two or three children to support unless it is topped up by tax credits. So unless employers raise wages substantially not to a living wage but to double the current pay to make good—to something like £10 or £12 an hour, which is not going to happen—their children will now become poorer still. That of course is why the argument that because pay is being capped to 1% so benefits must be is utterly fake, because Iain Duncan Smith—Mr Smith—knows perfectly well that they are largely the same group of people, their low but capped pay being topped up by low and, in future, artificially capped and lowered benefits.

It is precisely because earnings have fallen below inflation over the past few years during the recession that the tax credit bill has risen to compensate for that shortfall. Firms have also cut hours rather than sack staff; 3.5 million people are now involuntarily underemployed. As one family man in Norwich said to me not long ago, at least tax credits help to make up the difference.

So instead of the Government explaining and accepting, as they should, that the increase in tax credits is due to falling wages and that it helps to protect families, we are instead told that as wages have fallen, so must benefits, thus ensuring that the working poor face a double lock on pay and tax credits—and of course the universal credit, when it comes in, will no longer take the strain.

Nevertheless, the Government claim that we cannot afford not to cut benefits, an argument that has been run today. Benefit expenditure overall has grown, partly because tax credits help to offset low pay and lowered hours of work but mainly because pensioners are protected from any cuts, their pensions are rising and

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more of them are living longer. That is good news. However, the dirty news is that the unemployed and the low-paid, and their children, are now being blamed by IDS for what his colleague, Steve Webb, is rightly doing for pensioners. How cynical can you get? Pensioners get a triple lock into greater comfort, which I welcome, while the poor of working age get a double lock into increased poverty.

Let us be clear, and I make this point again: this is about policy choices. As my noble friend Lord McKenzie has said, the Government have shown that they are on the side of millionaires, who are receiving a tax cut worth £3 billion, rather than 1 million poor children who will see their parents made poorer still by around £3 billion.

Above all, the Bill and its impact analysis cheat. They both treat these cuts as though they were freestanding—one-off, so to speak—and apparently not so very large. Around 30% of households will see an average cut of £3 through this policy, according to the impact analysis documents, when actually those cuts are a further slice off income on top of the myriad other cuts since 2010 that are already damaging poor families. We have heard nothing about those today, even from those who sit on the coalition Benches. In that regard, I say, “Shame on you”, because they are deleting what is clearly absolutely central to this debate. We have been offered no assessment of the cumulative impact of these cuts—£18 billion of cuts and no public analysis of how they build up or of whom they hit.

We had a debate on this a couple of weeks ago. I hope that noble Lords will forgive me if I repeat the broadest of statistics; as the Government will not, I will try. With the invaluable help of CAB and Landesman economics, we tracked the cumulative effects of all the cuts since 2010 on one family: a couple with two young children, he a security guard in full-time work on minimum wage, living in a £100 per week council house and, obviously, entitled to pay council tax. He gained £1.71 per week from the raising of the tax threshold and then went on to lose £30 to £35 per week in benefit cuts. If one of his children is disabled, say, he will lose over £40 per week. Under the universal credit, the cuts increase to £50 per week if he is in work or £65 per week if he is unemployed. It gives a new meaning to the slogan that the universal credit will make work pay—yes, by reducing the benefit floor underneath it.

Those statistics were the result of a weekend’s work. With more time, I would have tracked the cumulative effect not only on the security guard’s family but on a lone-parent family, on a childless couple and on a single person, because they all share the cuts. It is not rocket science; it is standard policy analysis on standard family types, as they are called, and yet we are told that the DWP and HMRC with, what, 60 professional analysts, powerful computer modelling and a couple of months in hand to do the work are unable tell us what the total effect of these cuts will be, which some of us were able to work out in a weekend? I really cannot believe that they do not know what the impact of their policy initiatives is and who bears the bill. They still will not or cannot tell us. If they do not

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know, it is an utter dereliction of social duty, it really is—you cannot develop policy and be indifferent to its effects—but if, however, they do know and are not telling us, it is a deceit that I cannot believe my former department would stoop to.

Finally, what makes me angriest of all—the right reverend Prelate the Bishop of Leicester powerfully focused on this—it that this Bill is grotesquely unfair on whom it falls, on poor children above all. Since when, as we talk about us all being in this together, do we include poor children in the we, but exclude comfortably off pensioners like me, who have experienced not a penny of cuts? What sort of we is that? The noble Lord, Lord Bates, said nobody was telling him where to find the money. I urge him and the noble Lord, Lord German, to accept that we are today making policy choices, not following financial imperatives. It really is about choices about who pays and, ultimately, who gains. It really is. With £32 billion spent on pension tax relief still untouched, although two-thirds goes on the better off, and what is happening on tax reductions for millionaires, these are political policy choices.

We could all have done different and in the process saved the situation that poor children will fall into, stumble into, as a result of what we are doing today. These cuts will fall on those in rented housing who rightly fear losing their home, rather than on those who have two, three or, as the papers have recently told us, even eight homes. They fall on those who go to food banks, not to foodie restaurants. They fall on separated loving dads who have their children stay over at week-ends, rather than on fathers who lose contact and refuse them. They fall on families with a wheelchair user rather than a Ferrari driver. These cuts fall on the vulnerable but voiceless, rather than on those of us with resilience and resources, but who, of course, are more likely to vote. It is a shameful little Bill. As Hobbes might have said, it is nasty, brutish and short.

4.23 pm

Lord Low of Dalston: My Lords, it feels presumptuous to rise after a powerful speech such as that, but I shall try to do my best.

This miserable little Bill is not only mean-spirited and out of touch; it, or rather the spin surrounding it, is misleading, not to say dishonest. Moreover, the whole enterprise is misconceived. It is out of touch in the way it perpetuates the relentless attack on welfare, which is depicted as an aberration in social policy, to put it no higher, that needs to be reversed instead of as a mark of a civilised society acknowledging its obligation with increasing prosperity to look after its less fortunate members. Recipients of welfare are demonised as battening on society, and crude cutting is mystified in the rhetoric of helping people off benefits and into work.

The Bill’s justifications are misleading in their use, not to say their creation, of five myths. First is the myth that there is a radical separation between those on welfare and those in work, but many of the benefits that will be pegged by this Bill go equally to those on welfare and those in work: tax credits, for example. The second is that benefits have risen twice as fast as

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pay. They may have if you pick your dates correctly, but everyone knows that historically wages have risen considerably faster than benefits, which are pegged to the rate of inflation.

The third myth is that percentage, as opposed to cash, increases are a fair reflection of these things. I think that a caller to “Any Answers?” on the radio got this right when he pointed out that a 1% increase on the national average wage of £500 a week amounts to £5: a worthwhile sum. However, 1% on jobseeker’s allowance of £71 amounts to only 71p. That is as much of an insult as Gordon Brown’s 75p increase in the old age pension.

Fourthly, there is the myth that any shortfall in benefits is made up for by the increase in personal tax allowance. This applies only to those in work, of course. Anyway, as Citizens Advice has shown, capping the uprating of benefits will swamp any gain from the increase in the personal tax allowance, certainly for low-income households.

The fifth myth is that the most vulnerable are protected, but you do not protect the poor by cutting welfare since it is the poor who rely on welfare. You only have to look at the treatment of disabled people, whom the Government maintain they are protecting under the Bill, to see the essential dishonesty of the Government’s propaganda. Here, I declare my interest as having a connection with a number of disabled people’s organisations, which are mentioned in the register.

Disabled people are certainly vulnerable. They have experienced a drop in income of £500 million since the emergency Budget of 2010. The Government have already reduced the measure by which benefits are uprated from the higher RPI to the lower consumer prices index. Some benefits for disabled people and carers, such as disability living allowance, the support group component of employment and support allowance and disability-related tax credits are exempted from the reduced uprating. This acknowledgment that disabled people need additional protection is welcome. However, notwithstanding the Government’s claims, the Bill will still mean a real-terms cut in vital support for many disabled people. DLA will continue to rise by inflation, but this is not the case with employment and support allowance.

Following a work capability assessment, people who are unable to work can be placed in either the support group or the work-related activity group. Many disabled people are being placed in the work-related activity group. For them, the Bill will cap the uprating of this benefit to 1%. This will mean in effect that households in the work-related activity group receiving ESA will be £87.65 a year worse off. Furthermore, disabled people who are placed in the support group, meaning that their impairment or condition is such that they are not expected to look for work, have been given only limited protection from the reduced rate of uprating. The ESA that disabled people in the support group receive is made up of a core payment with an additional support group component. Only this additional component will continue to rise by inflation, with the

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core element rising by only 1%. This means that, overall, disabled people in the support group will see their ESA payments rise by just 1.4% rather than inflation. This will mean that a disabled person in the support group of ESA will be £62.76 a year worse off.

The real-terms loss of financial support that disabled people receiving ESA will face compounds a situation where disabled people are disproportionately more likely to live in poverty than non-disabled people. The problems of living on a low income are then compounded by the extra disability-related costs. When these are included in the measurement of poverty, the proportion of households with a disabled member living in poverty doubles to almost 50%. The Government’s impact assessment recognises that the Bill will impact on disabled people. It states that households where someone describes themselves as disabled are more likely to be affected than those where no person describes themselves as disabled—34% of households as against 27%.

For disabled people who also rely on other benefits, such as housing benefit, the reduced rate of increase will impact on the financial support they need to live. Despite assurances that disability benefits will be protected and continue to increase by inflation, disabled people claiming ESA, housing benefit or any other benefit not specifically for disabled people will see a real-terms cut to the amount of financial support that they receive.

The Bill will also reduce the rate at which the lower tier of the disabled child addition of universal credit increases. Disabled children in the UK are already disproportionately likely to live in poverty. Approximately 40% of all disabled children—about 320,000—live in poverty, compared with a poverty rate of 30% across all children. Nearly one-third live in severe poverty, where a family’s income is less than 40% of the national average. Under universal credit, which will begin to come into effect later this year, parents of disabled children can receive a benefit called the disabled child addition. This will replace the current disabled child tax credit.

Under universal credit, the support available for disabled children who do not receive the high rate of the DLA care component will be cut by one-half, from around £57 a week under the disabled child tax credit to £28.52. Furthermore, the Bill will mean that the value of this benefit will increase at a significantly slower rate—by just 1%—as opposed to in line with the consumer prices index, which is currently 2.7%. As a result of the Bill, parents of disabled children receiving the lower disabled child addition of the universal credit will lose £25.21 a year or £75.63 over the next three years.

Finally, the Bill is misconceived because, with the economy flatlining, it does not make sense to take purchasing power out of the hands of a section of the population that is most likely to spend what it has. The fiscal squeeze is set to tighten in 2013-14 compared with 2012-13, and the IMF is warning that planned cuts may need to be scaled back if growth does not build momentum by early 2013. Talk of growth, such as we heard in this House a fortnight ago, is largely beside the point while the level of demand in the

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economy is still so low. In these circumstances, the last thing we need is a further reduction in the level of demand. It even undermines the automatic stabilisers.

If the Government are to be as good as their word on the protection of disabled people, at a minimum the whole amount of ESA needs to be uprated in line with inflation for those in the work-related activity group, as well as the support group, and not just the additional support group component. Disabled people should be exempt from the reduced uprating of other benefits, such as housing benefit. I invite the Minister to respond positively to this proposal in the winding-up speech, before I start drafting amendments for Committee.

European Council


4.35 pm

The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford): My Lords—

Lord Tomlinson: May I ask the noble Lord, Lord Hill, one simple question? We have the Statement on the European Council in the Printed Paper Office, but in the very last sentence it refers to the multiannual financial framework, as set out in document 37/13. I have been now two or three times to the Printed Paper Office, and that document is not available. It makes it very difficult for Members to comprehend the Statement when the principal part of the European Council in discussions on the multiannual financial framework is not available to Members of the House. I apologise to the noble Lord for interrupting him before he starts.

Lord Hill of Oareford: I am happy to be interrupted at all times. I apologise for that and will see what we can do to put that right as soon as possible.

With the leave of the House, I will now repeat a Statement made earlier in another place by my right honourable friend the Prime Minister. The Statement is as follows:

“Mr Speaker, I am sure that the whole House will join me in sending our best wishes to Pope Benedict following his announcement today. He has worked tirelessly to strengthen Britain’s relations with the Holy See, and his visit to Britain in 2010 is remembered with great respect and affection. Pope Benedict’s message on that visit of working for the common good is something that spoke to our whole country, and I am sure his successor will continue to provide a voice of inspiration for millions around the world.

Last week’s European Council agreed the overall limit on EU spending for the next seven years, starting in 2014. When these multiyear deals have been agreed in the past, spending has gone up, but last week we agreed that spending should go down. By working with like-minded allies, we delivered a real-terms cut in what Brussels can spend for the first time in history.

As the House knows, the EU budget is negotiated annually, so what we were negotiating, initially at the Council last November and again last week, was not the individual annual budgets but rather the overall framework for the next seven years. This includes the

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overall ceilings on what can be spent—effectively, the limit on the European Union’s credit card for the next seven years.

During the previous negotiation, which covered the period 2007-13, the previous Government agreed to an increase in the payments ceiling of 8% to €943 billion. Put simply, this gave the EU a credit card with a higher limit, and we are still living with the results of allowing the EU’s big spenders to push for more and more spending each year. In fact, only last year, while member states had to make tough decisions to tighten their belts at home, the big spenders succeeded in increasing the 2012 European budget by another 5% compared with the previous year. If no deal had been reached, the existing ceilings would have been rolled over and annual budgets could have continued to soar for the next seven years. Because annual budgets are negotiated by qualified majority voting, it can be difficult to constrain spending in these annual negotiations. By contrast, the seven-year limits are agreed by unanimity. So this was our chance to get the ceilings down in line with what could be afforded.

The European Commission produced an initial proposal for increasing the payments ceiling still further to €988 billion. This was strongly supported by a number of member states. The first negotiation took place at the Council in November and, although the President did then reduce this during the Council itself, it was still some way short of the real-terms cut we were looking for. Together with like-minded allies from a number of countries, including Germany, Sweden, the Netherlands and Denmark, we rejected the deal on the table and told them to think again.

At this Council, we made further progress. Together with like-minded allies—many of whom, like Britain, actually write the cheques—we achieved a proper look across all the areas where spending in the Commission proposal could be cut. While there are areas where we could and should go further, not least on reforming the common agricultural policy and reducing the bureaucratic costs of the European Commission, we agreed a real-terms cut in the payment limit to €908 billion. That is €80 billion lower than the original proposal. It is €35 billion lower than the deal agreed by the previous Government, which is still in operation today, and it is €60 billion lower than the emergency arrangements which would have come into place if there were no seven-year deal.

But my aim was not simply to cut the credit card limit. I wanted to set the limit at a level that would deliver at worst a freeze and at best a cut in the actual spending over the next seven years, and this is indeed what this deal delivers: a real-terms cut. If you take the latest complete budget—the one for 2012—and freeze spending at that level for the next seven years, you would have spending of €932 billion. Our new payments limit means spending cannot rise above €908 billion, so we have slashed €24 billion off a real freeze on the last completed budget. Of course, the budget set in 2012, which Britain voted against, was unacceptably large, but even against the average of the past two completed years—2011 and 2012—this deal still delivers a real-terms cut.

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Of course, this deal must now be voted on by the European Parliament. The European Council has said that it is prepared to accept some flexibilities about how spending is divided between different budget years and different areas of spending, but we are absolutely clear that this must be within the framework that the member states have now agreed. The EU’s seven-year budget will now cost less than 1% of Europe’s gross national income for the first time in its history.

Let me say a word about how this deal is likely to affect the UK’s contribution; a word about how it is likely to affect what the UK receives from the EU for research, for our regions, and for our farmers; and a word about what this means for growth and competitiveness across the European Union as a whole. On the UK’s contribution, the House will remember how the previous Government gave away almost half of our rebate. This has had a long-term and continuing effect on the UK’s net contributions. It is worth remembering why. When the European Union spends money on, for example, structural funds and cohesion payments in eastern European countries, the UK no longer gets a rebate on this money. As a result, almost whatever budget deal was done, our net contributions were always likely to go up, but as a result of this deal, they will be going up by less.

The only two sensible things we could do to protect the British taxpayer in these negotiations were to get the overall budget down and to protect what is left of our rebate, and that is exactly what we have done. While the actual amount that the UK contributes will depend on technical factors such as the size of the annual budgets, economic performance and exchange rates, as a result of this deal we now expect the UK’s contribution to the EU to fall as a share of our gross national income. As for the rebate this Government inherited, it is completely untouched. As ever, throughout these negotiations, the rebate was attacked repeatedly, but I successfully rejected all the calls for change. Under this Government, the British rebate is safe.

In terms of what the UK receives, I wanted to make sure that our universities are well placed to receive research work, our less well-off regions are treated fairly compared with others and our farmers continue to receive support for the environment schemes they put in place. On these points, the section of the budget that includes spending on research, innovation and university funding is up by a third, and this money is handed out on the basis of quality, so Britain’s universities are particularly well placed to benefit. We have ensured that structural funds will continue to flow to our less well-off regions. Britain’s share will remain broadly the same, at around €11 billion. And while we have cut spending on the common agricultural policy overall, we have protected the flexibility which will allow us to direct funds to support both the environment and the livelihoods of our farming communities.

Overall, this is a better framed budget in terms of growth, jobs and competitiveness. It is disappointing that administrative costs are still around 6% of the total, but overall spending on the common agricultural policy will fall by 13% compared with the previous seven-year budget. Research and development and other pro-growth investment will now account for

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13% rather than 9% of the total budget. Reform of EU spending is a long-term project, but this deal does deliver important progress. Working with allies, we took real steps towards reform in the European Union. It is a good deal for Britain, a good deal for Europe and, above all, a good deal for all our taxpayers. That is what we have delivered, and I commend this Statement to the House”.

My Lords, that concludes the Statement.

4.45 pm

Baroness Royall of Blaisdon: My Lords, I thank the Leader of the House for repeating the Statement by the Prime Minister on the outcome of the European Council meeting. Like the Prime Minister and the Leader of the House, I pay tribute to Pope Benedict XVI. He is a spiritual leader for 2 billion people and a theologian of great distinction. His visit to the UK in 2010 will be long remembered as a proud moment for millions of Catholics, other people of faith in this country and, indeed, many Members of this House. His decision to stand down is not one that he will have reached lightly. It is right that all sides of your Lordships’ House acknowledge his service, and from these Benches, I do so now.

On the European Council, I join the Prime Minister and the Leader of the House in welcoming the fact that an agreement has been reached on a cut in the seven-year payment ceilings for the European Union budget. At a time when so many budgets are being cut at home, last October the other place voted for a real-terms cut in the EU budget, and it was right to do so. That is what my party argued for in the debate. In the resulting vote, the Prime Minister was given a strong negotiating mandate for a real-terms cut in the budget. We are therefore glad to see the agreement reached at the European Council. However, as well as restraint in the budget, we needed reform—prioritising growth within a smaller budget by cutting back even further on wasteful spending.

First, on agriculture, the CAP fell as a proportion of spending from 46% in 1997 to 33% in 2010. We welcome the modest decline in agriculture spending as a share of the European budget, from 31% in 2013 to 27% by 2020. The Leader was right to say that there is further to go in this area, with agriculture making up just 1.5% of the total output of the European Union but still accounting for nearly 30% of the budget.

Secondly, we welcome the increase in funds targeted towards growth infrastructure, R&D and innovation. However, can the Government confirm that the achievement of a declining budget compared to November’s proposal came not at the expense of agricultural spending but in part at the expense of this funding for growth? Can the noble Lord also tell the House that proper investment will continue to be made by the EU in science, as urged by many UK university vice-chancellors last week?

Thirdly, the Opposition and the Government agree on the need for the EU to play its part in effective development, diplomatic and governance support in north Africa. Can the Leader of the House therefore say what discussions took place about how the EU could play this enhanced role in the context of the

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decision in this budget round to freeze the European Development Fund, which provides assistance to that region? Given the new emerging challenges across the Sahel, what information can the Leader of your Lordships’ House provide on how funding to that region will be affected? Will he also take this opportunity to update the House on the transition road map for Mali, which forms part of the Council conclusions?

Fourthly, given the very significant and unprecedented difference between the ceiling on payments and the ceiling on commitments agreed on Friday, can the Leader tell the House what discussions took place on how this would be dealt with in the years ahead?

This budget agreement shows that contrary to the views of some Members opposite, the European Union is capable of change, and that it is capable of change when we work with our allies. However, while this budget agreement brings restraint, Europe still needs a plan for recovery and growth. The Council conclusions talk about the importance of trade agreements. Can the Leader update the House on developments on the possible EU-US trade agreement and on how the Government see it being developed this year, including at the G8 summit? However, do the Government also recognise that the long-term changes to the budget and the possible EU-US trade agreement are not a substitute for a growth strategy now for Europe?

There are 26 million people unemployed in the European Union, more than 6 million unemployed young people looking for work and, shamefully, 1 million of them are here in the UK. I should be grateful if the Leader can say what specific budgetary measures were agreed in relation to young people and employment—for example, on the European youth guarantee.

The European economy is struggling and the British economy is flatlining. What Europe now needs—what Britain now needs—is a plan for jobs and growth. That is the way in which Europe must change, and that must be the priority for the months and years ahead, in both Britain and the European Union.

4.50 pm

Lord Hill of Oareford: My Lords, I am grateful for the broad welcome given to the Statement by the noble Baroness, Lady Royall. She made the point that this negotiation demonstrated, as I believe it did, that the EU is capable of change. It was not that long ago that some in the party opposite were saying that my right honourable friend the Prime Minister was isolated in Europe. The deal that he managed to strike demonstrated that, by working closely with our allies, particularly with the Nordics, he has been able to secure a good deal and a deal which, overall, will lead to savings, so we are far from being isolated. That is absolutely right in the current climate.

On agriculture, I agree with the noble Baroness that there is more to do on CAP. Generally, in these negotiations one does not always achieve everything that one wants. Britain’s overriding priority was to go for a freeze, or, if possible, a real-terms cut in the overall credit card limit or ceiling, which we have achieved. Some steps were taken and the CAP budget

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was reduced for the next seven years from a proposed €320 billion to €277 billion, so that is some progress, but I accept that there is more to do.

As regards growth, as the noble Baroness said, the budget for R&D has increased. The Connecting Europe Facility has also been increased. In terms of making savings on where some of those moneys have come from, my right honourable friend was keen to make bigger savings in the administration costs and he was disappointed not to have got those because there is a widespread feeling that we could have done better. We managed to take €1 billion out, but I am sure that more could have been done.

On the noble Baroness’s important points about governance in Africa, the Sahel and the road map for Mali, it is true to say that the overwhelming priority of this Council was sorting out the multi-annual financial framework, so the amount of time spent on some of these other important issues was proportionately less. As regards Mali, at the European Council the contribution made by the French was praised and the United Kingdom gave them strong support. We will contribute by training troops from the west African nations, as the noble Baroness will know. Generally, our approach is to try to develop a more sophisticated, political, diplomatic strategy alongside a military strategy.

The European Development Fund went up by a modest amount, so I am not sure that it was frozen. If I am wrong on that, I shall correct what I have said.

On the gap between the ceiling on payments and the ceiling commitments, raised by the noble Baroness, I understand that that size of gap is not untypical in terms of these negotiations. It is broadly in line with what had been the case in the previous seven-year negotiations. The European Commission also said that it thought that scale of gap was deliverable.

On growth generally, the noble Baroness is right to point to the importance of the trade negotiations and to see whether we can make more progress on the EU-US talks. I know that my right honourable friend the Prime Minister spoke to President Obama not long ago to try to make further progress on that. I also know that good progress has been made on those talks with Canada and negotiations are being taken forward with Japan. Opening up the European Union and encouraging trade is one of the most powerful ways in which to help growth and to get jobs, especially for the young, about which the noble Baroness is concerned.

4.54 pm

Lord Dholakia: My Lords, I thank my noble friend for repeating the Statement in your Lordships’ House. Perhaps I may say how much we welcome the Statement, and in particular the fact that research and university budgets have not been affected. At a time of economic recession, when national and household budgets are shrinking, it is right that the European budget should reflect the gravity of the situation. However, two elements have been preserved: growth and jobs. Is my noble friend able to quantify the overall impact on growth and jobs resulting from the reduced European Union budget?

Lord Hill of Oareford: I am grateful to my noble friend for his overall welcome, and for the support he has given over a considerable period to my noble friends

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who took part in these important negotiations. I am not able to give a specific calculation of what the contribution of a smaller budget is likely to be to jobs and growth, because so many variables are in play: what happens in the eurozone, what happens to trade, how far we get with these talks and so on. What I am able to say is that the increased line on research and development should be of particular benefit to British universities, given that the money is distributed on the basis of quality—and, as we all know, British universities are renowned for their quality.

Lord Wigley: My Lords, will the Leader confirm my understanding that structural funds will continue to flow to regions of economic need. I believe those were the words he used? If so, will he confirm that the funds will remain at the levels that were previously anticipated for qualifying areas such as west Wales and the valleys, and that the source of funding will not be repatriated under last week’s agreement?

Lord Hill of Oareford: My Lords, on the question of these important funds, the noble Lord will be aware that the direction of travel, which the British Government support, is to try to make sure that they go to the least well-off regions in the European Union. With the accession of new countries to the east, it is important that they should have those funds. On the noble Lord’s specific question, we currently expect that the overall receipts will be broadly comparable to 2007 to 2013 levels. There will be a domestic application process that the Government will have to go through in due course, as a result of which we will know what the figures are.

Lord Howell of Guildford: My Lords, I apologise for not being in my place for the first two minutes of my noble friend’s speech. Is not by far the best outcome of this very satisfactory budget negotiation, on which my right honourable friend the Prime Minister should certainly be congratulated, the fact that it demonstrates that when we go for constructive reform in the European Union, we are not without friends—and indeed, that we are gathering an increasing number of allies? Will my noble friend point out to those who keep talking about Britain being isolated and marginalised that the opposite is the case, and that when we develop our ideas further for European reform, clearly we will have more friends?

Perhaps I might add a second question. I read in the papers this morning that up to 20% of the entire EU budget will now be spent on climate-related and green issues, including energy. Can my noble friend confirm whether that is true? If it is, what can we do to make that expenditure far more efficient in achieving good environmental and energy results?

Lord Hill of Oareford: On my noble friend’s second question, I will need to see whether I can provide better particulars on how the figures break down, and what the basis is for the speculation that my noble friend saw—whether it is to do with the energy elements of environment funds through the CAP, for example. I am not sure about that, so I will see what I can do. On his general point, I could not agree more. This outcome

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shows that Britain was far from marginalised and isolated in the negotiations. It also shows that the pessimistic view held by some that Britain is doomed to fail, and therefore should not go into negotiations with a strong position trying to win others round to our point of view, is entirely wrong.

I remember that many years ago when I was working for the then Prime Minister, John Major, there were similar views to the effect that Britain would never be able to win an opt-out of the single currency or an opt-out of the Social Chapter, but in fact those were both successfully achieved. Similarly on this occasion, there were people looking forward with eager anticipation in the expectation that my right honourable friend the Prime Minister would not be able to secure Britain’s interests. In fact, he has; I agree with my noble friend that by being clear in one’s objectives and by assembling alliances—in this case, with the Germans, the Swedes, the Dutch and the Danish—it is perfectly possible for Britain to secure its objectives, and it will continue to be so.

Lord Pearson of Rannoch: My Lords, I hope it will not ruin the Prime Minister’s day if I offer congratulations on a small step in the right direction. However, I think he is going a bit far when he describes the present situation as “a good deal for taxpayers”. Could the noble Lord tell us what this country’s gross and net contributions now become? In 2012, our gross contribution was some £22 billion, of which we got back around £11 billion, so our net contribution was £11 billion a year. That represents the salaries of 1,000 nurses at £30,000 a year every day, which we never see again. Therefore, I still have to query whether this whole arrangement is anything but a disastrous deal for British taxpayers.

More importantly, perhaps, is it true that the European so-called Parliament is going to vote on this new proposal in secret? If so, does that not nicely confirm the nature of this animal? What happens if the EU Parliament votes this down? Do we go back to some 2% inflation per annum for the next seven years? Could he enlighten us on that before we get too overwhelmed by the Prime Minister’s success?

Lord Hill of Oareford: I shall do my best to calm the House down, my Lords. I noticed that in the space of the comments of the noble Lord, Lord Pearson, he went from expressing concern about causing my right honourable friend the Prime Minister an anxiety attack by praising him, to rescinding that praise by the end.

On the cost to the British taxpayer, clearly, so far as the negotiation was concerned, the fact that the Prime Minister managed to end up with a credit card limit that was so many billions of euros lower than had been initially proposed is a cause of some modest satisfaction to the British taxpayer. That cost would have been lower if a chunk of our rebate had not unfortunately been surrendered in those negotiations in 2005 in the hope, as I understand it, that there would then be a deal on the CAP: a deal that has not been forthcoming. That explains why, although the overall figures are considerably lower—and they do

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represent a real-terms cut, which is what everyone wanted—the cost to the taxpayer is nevertheless higher than one would like.

On the European Parliament, like the noble Lord I have read some of the speculation there has been about that. The European Parliament has a role to play in approving the budget, but our position is that that agreement was struck by the 27 member states that are responsible for finding the money. We believe that some of the situations that the noble Lord has invited me to speculate about will not come to pass, but we need to see what happens. I will not be drawn into his alluring hypothetical situations.

The Lord Bishop of Worcester: My Lords, we on these Benches wish to join in paying tribute to His Holiness the Pope following his announcement. We give thanks for the outstanding contribution that he has made to the common good as well as to the welfare of the church during a long and distinguished ministry. He is in our prayers, as are those responsible for electing his successor, and as are the many Roman Catholics who will have been distressed and disorientated by his announcement.

Mention of the common good brings me to the EU budget and the welcome announcement that has been made. Can the Leader of the House assure us that the Government will focus their attention on what the budget seeks to achieve as well as on its size? There is a broader question here of what constitutes good stewardship of the resources that Europe has at its disposal. Stewardship requires a way of living that recognises that everything belongs to God and that all resources must be used for his glory and the common good. It requires us to find ways of collaborating with others to make the resources in our possession work for the good of all, as intended by God.

The Leader of the House will know that in 2004 the Sapir report was commissioned by the European Commission to look at ways in which the EU might deliver on the promise made in 2000 of becoming the most competitive knowledge-based economy in the world by 2010. The report argued that:

“As it stands today … the EU budget is a historical relic. Expenditures, revenues and procedures are all inconsistent with the present and future state of EU integration”.

Can we have an assurance that the Government will press for a more radical restructuring of the European Union budget in the time to come?

Lord Hill of Oareford: My Lords, I recognise the important points made by the right reverend Prelate on behalf of the Bishops’ Bench in respect of His Holiness the Pope.

On the overall administration of the EU budget, I think my right honourable friend the Prime Minister has made it clear that he shares the sentiment that the way in which it appears to have been going up and up does not suggest very good stewardship—to use the right reverend Prelate’s word. In the years ahead we will carry on trying to bring pressure to bear, as we will in trying to make sure that all the funds that are allocated are spent responsibly and wisely on the ends for which they were intended.

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Lord Tugendhat: My Lords, I think it is the turn of this side of the House. As a former budget Commissioner, perhaps I may add my congratulations to those of others to the Prime Minister on his achievement. I also emphasise the points made by my noble friend Lord Howell about the importance of alliances. This shows that when alliances are built up, results can be achieved, something that many people would not have believed possible. The way in which the Labour Party voted before the last round of budget negotiations, when it thought that it was setting the Prime Minister an impossible target, is an indication of how effective British diplomacy has been on this occasion.

Finally, does my noble friend agree that there is no stronger supporter of the European Union than Chancellor Merkel? The fact that she is on the same side as us gives the lie to those who argue that you measure support for the European Union by the size of the budget. No one would suggest that British patriotism can be measured by the level of public sector expenditure, and it is a complete fallacy to suppose that one should measure support for the European Union, as so many in the European Parliament do, by the size of the budget.

Lord Hill of Oareford: I think I agree with every single point that my noble friend Lord Tugendhat has made. He has underlined the importance of alliances, which is clearly right, and he has drawn particular attention to the strength of the relationship that my right honourable friend the Prime Minister has worked hard to develop with a number of allies, including Chancellor Merkel. It is also true that in domestic politics the level of commitment is not related solely to the size of a budget. Given his experience, I have listened with particular care to my noble friend and I endorse his conclusions.

Lord Hannay of Chiswick: My Lords, I hope the Minister will get some pleasure from somebody who is normally a critic of the Government’s European policy saying that I thought an extremely good deal was sealed last week. I am also delighted that the Prime Minister, in his Statement, drew the right conclusion from it, which was that you can get a good deal if you work carefully with your partners.

Was the noble Lord the Leader of the House not slightly surprised that one thing that no one has commented on so far is that the Prime Minister has committed himself to a budget that goes three years beyond the date of the referendum which he has said he is going to call? On this vexed question of the rebate, will the noble Lord the Leader of the House perhaps confirm that the change in the British rebate that took place in 2005 was simply Britain agreeing to pay its fair share of the structural fund spending in the new member states? Does he think that we should not have paid that fair share? We were the primary protagonists of those member states joining.

Lord Hill of Oareford: First, I very much welcome the noble Lord’s welcome for my right honourable friend the Prime Minister’s achievement, from a different

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perspective from that of the noble Lord, Lord Pearson of Rannoch. I am obviously very aware of his background and experience in these matters, so am glad to receive it.

On the noble Lord’s point about the rebate in 2005, my understanding is that the other side of that deal, as it were, was supposed to be reform of the CAP, which, sadly, has not been forthcoming. That will cost the taxpayer in the region of, I think, €8.5 billion. From the point of view of wanting to defend the interests of the British taxpayer, I am extremely glad that my right honourable friend the Prime Minister has taken a robust line on Britain’s abatement. He was pushed to surrender more of it but felt that to do so would be wrong. I am glad that he resisted that pressure.

Lord Ryder of Wensum: My Lords, in the event that Scotland votes next year to become an independent nation, and therefore ceases to be a member of the European Union, can my noble friend confirm that the resources normally allocated to Scotland will be reallocated to the other three partners within the United Kingdom: namely, Northern Ireland, Wales and England?

Lord Hill of Oareford: My Lords, one thing that is clear in the document that I believe has been published today by constitutional experts looking into some of the implications, were there to be a vote in favour of independence in Scotland, for membership of organisations such as NATO or the European Union is that it is, to say the very least, unclear how things would pan out. However, the assumption that everything would just roll on is certainly questioned. My noble friend is right to highlight those concerns. Difficult and complicated negotiations would need to take place.

Lord Lea of Crondall: My Lords, will the noble Lord the Leader of the House agree that, given the complexities of these negotiations and the widely recognised need to explain to the British people how these things work, this is not the right time for the Secretary of State for Education to say that the question of understanding the European Union and its history and geography will be removed from the national curriculum?

Lord Hill of Oareford: I always admire the ingenuity with which certain Members of this House manage to broaden the scope of the matter at hand. There are many ways in which we can try to increase public understanding of membership of the European Union, which lies at the heart of why so many people question the nature of our relationship with it. People’s trust in the institutions of the EU does seem to be wearing thin. Whether or not better geography and history teaching will help with that, I leave to others to decide.

Lord Empey: My Lords—

Noble Lords: Too late.

Lord Empey: It was 19 minutes when I got up.

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Social Care Funding


5.15 pm

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, with the leave of the House I shall now repeat a Statement made earlier today in another place by my right honourable friend the Secretary of State for Health, on the funding of care and support in England. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on the funding of care and support in England. As we get older, none of us can have any way of knowing what care needs we will eventually face. Some will be blessed with a long and healthy life, but many others will be less fortunate.

Today many older people and people with disabilities face paying the limitless—often ruinous—costs of their care, with little or no assistance from the state. While those with assets of less than £23,250 do receive support, those with assets above this level receive none. This is desperately unfair, particularly for those who have worked hard all their lives to pay off their mortgage, to save for their future or to have something to pass on to their loved ones, only to see their property sold and their savings wiped out—something that happens to more than 30,000 people every year or 100 people every day. The system we have also sends out the wrong message: that you are better off not saving for your future because any savings will only disappear in a puff of smoke.

Today I can announce this Government’s radical plans to transform the funding of care and support in England, bringing a new degree of certainty, fairness and peace of mind to the costs of old age, disability and living with long-term conditions, while ensuring that the greatest level of financial support goes to those with the greatest need. We propose to introduce a cap on an individual’s financial contributions towards the cost of care, and a significant increase in the level of assets a person may hold and still receive some degree of support from the state.

In 2010 this Government asked the economist Andrew Dilnot to look at the whole issue of funding for care and support. The independent Dilnot commission published its recommendations in July 2011. In response to those recommendations, and following extensive engagement with the care and support sector, we published the Care and Support White Paper and the progress report on funding reform in July 2012.

In the progress report, we accepted some of Andrew Dilnot’s main recommendations, including those around a consistent, nationally set eligibility threshold for care and support, and universal deferred payments—whereby no one will have to sell their home in their lifetime to pay for care costs. I would like to take this opportunity to thank Mr Dilnot and his team for their excellent work.

A core principle set out by the Dilnot commission was that people should contribute to the costs of their own care but that those costs should be limited and people should be protected against the potentially catastrophic costs of care. This should come through a cap on those costs, and an extended means test. One

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person in 10 will be faced with care costs in excess of £100,000, with a small number facing costs significantly higher still.

To give everyone peace of mind, from April 2017 we will introduce a cap on the amount that someone over state pension age will be liable to pay. The Dilnot commission’s original suggestion was for a cap of between £25,000 and £50,000 in 2010-11 prices, which is the equivalent of between £30,700 and £61,500 in April 2017 prices. Despite the extremely challenging economic situation we find ourselves in, we have come as close to this range as possible.

The cap will be set at £61,000 in 2010-11 prices, or £75,000 once it is introduced in April 2017. The intention is not that people should have to pay up to £75,000 for their care costs. But by creating certainty that this is the maximum they will have to pay, they can then make provision through insurance or pension products so that they are covered up to the value of the cap, thereby reducing the risk of selling their home or losing an inheritance they have worked hard to pass on to their family.

Young people who already have care needs when they turn 18 will now receive free adult care and support when they reach 18. People who develop a care need after 18 but before state pension age will be protected by a cap that is below the £75,000 threshold.

The other measure that we propose is significantly to increase the amount of assets that a person can hold and still receive financial support for their residential care- home costs. Currently, this is set at £23,250. If a person has assets valued above this level, including, in some circumstances, the value of their home, they receive no support. The Dilnot commission recommended that this threshold be raised dramatically to £100,000 in 2010-11 prices. We accept this recommendation.

From April 2017, the threshold will be increased so that those with assets worth £123,000 or less, equivalent to Dilnot’s recommended level, will all receive some degree of financial support for their care costs. People with the fewest assets will receive the most support. This will, for the first time, provide financial protection for those with modest wealth, while ensuring that the poorest continue to have all or the majority of their costs paid.

Everyone will benefit from the peace of mind that a cap brings. The introduction of a cap and the extended means-tested support will help many people in the most challenging circumstances—we expect up to 16% of older people who need care to face costs of £75,000 or more. But, of course, none of us knows whether we will be one of that 16%. Everyone will benefit from the peace of mind that these changes bring and, by 2025, up to 100,000 more older people will receive financial support for their care costs as a result.

My right honourable friend the Chancellor and the Treasury have rightly insisted that we identify how we pay for the additional costs of these proposals. In this day and age, making promises that you cannot pay for makes those promises meaningless. We have therefore identified exactly how to pay for them. These reforms will cost the Exchequer £1 billion a year by the end of the next Parliament. With the agreement of the Chancellor, they will be met in part by freezing the inheritance tax

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threshold at £325,000 for a further three years from 2015-16. The Chancellor and the Chief Secretary to the Treasury have agreed that the remaining costs over the course of the next Parliament will be met from public and private sector employer national insurance contributions revenue associated with the end of contracting-out as part of the introduction of the single-tier pension.

These two new proposals join with others previously announced when we published the draft care and support White Paper last summer. They include, from 2015, the ability of people to defer the payment of residential care costs so that no one needs sell their own home to pay for them during their lifetime. Also from 2015, a national minimum eligibility threshold will be introduced to end the lottery of local access that can see support provided to someone in one area but not in another. Taken together, today’s proposals and those already set out in the draft care and support Bill represent a new era of support for the elderly and disabled in England.

Thanks to the certainty that these proposals will introduce, people should no longer feel that they have to hoard every penny in case the very worst happens or feel that they are powerless and that there is no point in saving at all. Rather, they will be able to plan and prepare sensibly for their future. This will be supported by a wider range of financial products becoming available in the market designed to help people to plan and prepare for their later years and to reassure them about how much they will pay. We will work with the care and support sector—with local authorities, charities, care providers and individuals, and with the financial services industry—to develop these plans and to introduce them practically.

Our society is ageing. By 2030, the number of people aged over 85 will double, and the number of people with dementia will exceed 1 million. As the number of older people with such long-term conditions increases, we need to become a society where people prepare and plan for their social care costs as much as they prepare and plan for their pension. Sadly, this is an issue that Governments of all colours have long failed to tackle. While there are many other things that need to be done to prepare for an ageing population, these reforms herald a historic change in the way that care and support is funded in this country.

The economic circumstances are challenging, but these commitments demonstrate our determination to help people who have worked hard, saved and done the right thing to prepare for the uncertain hand that fate deals to all of us in old age. By introducing these reforms within the timescale and at the thresholds set out, they will also be sustainable and consistent with our overriding priority to reduce the deficit inherited from the previous Government. We want our country to be one of the best places in the world to grow old. These plans will give certainty and peace of mind about the cost of care, making sure that we can all get the support we need without facing unlimited costs, while also ensuring that the most support goes to those in greatest need. I commend this Statement to the House”.

My Lords, that concludes the Statement.

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5.26 pm

Lord Hunt of Kings Heath: My Lords, we are grateful to the noble Earl for repeating the Statement.

It is accepted on all sides of the House that our current social care system is living through the worst of all possible worlds: a cruel lottery in which people who go into later life with everything for which they have worked so hard on a roulette table and the most vulnerable are always the biggest losers. So it needs to change. The Secretary of State has today published a modest plan that will make the system fairer than it is today, and he is to be congratulated on that. We welcome elements of what he has announced. A cap of £75,000 is certainly better than no cap at all. Raising the means-test threshold will help more people on lower incomes to get some help with their charges. It is a step forward, but it is a faltering one, and only one of a series of measures that are required if older people and people with long-term conditions are to be given sufficient care and support. We need a holistic, cross-party approach.

Last week, the Francis inquiry exposed some very serious issues within the National Health Service which impact on the quality of care for a growing number of older people in our hospitals, often with several different illnesses. The NHS is overwhelmed with the demands being made on it, the tightening of its finances and the rightful emphasis on safety and quality. The changes being made by the Health and Social Care Act focus on the commissioning responsibility of general practitioners but, overwhelmingly, the real need for GPs is to focus on improvements in primary care, including accessibility and support for older people in their homes. Just when local authorities are needed to do so much more to help prevent admissions to hospital and to have much faster and more sensitive support for people discharged from hospital, they are having to cope with huge reductions in expenditure.