A number of pieces of JRF research have also illuminated how the demonising division of the world into strivers and skivers belies the constant movement in and out of work at the bottom of today’s insecure labour market. The assumption that people out of work are skivers ignores the ways in which they strive to get on and to help their children to get on, strive to care for their families and often to improve their local communities, too. I suggest that it is an unfair slight on the good name of many of our fellow citizens to write them off as “shirkers”, “welfare dependents” and undeserving of decent benefits.
It is also unfair to suggest, as did the Secretary of State recently, that many of those in receipt of tax credits are somehow getting what they are not entitled to. This smacked of an attempt to deflect the evidence that around half of those affected by the Bill are in working households. This discrediting of tax credits ignores the ways in which, as has already been noted, they have supported low-income working families whose earnings have been squeezed during the recession, and have probably contributed to the lower than expected level of unemployment. To then compare the increase in benefit levels with these same squeezed wages as justification for this Bill, which also cuts tax credits, is to add insult to injury.
I suggest that the Government’s arguments do not withstand scrutiny. Instead, this is an unnecessary, political bill designed to divide one group of low-income people from another and to court public opinion. The one silver lining is that opinion polls suggest that the public are less enthusiastic than the Chancellor of the Exchequer had perhaps anticipated. By fixing benefit upratings at an arbitrary 1%, regardless of what happens to inflation over the next three years, rather than assessing the situation in the normal way, year by year, the Government are, in the words of the Institute for Fiscal Studies, exposing,
“the poorest in society to inflation risk”,
a point made powerfully by the noble Lord, Lord Kirkwood.
As even the right honourable John Redwood warned in the other place:
“If inflation suddenly took off”—
I am not sure about “suddenly”, because I have been reading reports about the new Governor of the Bank of England talking about economic policy which may well increase inflation—
“this would become a much tougher and crueller policy”.—[
Official Report
, Commons, 21/1/13; col. 66.]
It is already a tough and cruel policy. It does not deserve your Lordships’ support.
8.32 pm
Lord Macdonald of Tradeston: My Lords, as previous speakers have emphasised, the impact of the Bill must be seen in the context of the radical reforms taking place across the welfare system—reforms which my noble friend Lady Hollis denounced so comprehensively in her coruscating and, indeed, moving speech following the equally persuasive critique of the right reverend Prelate the Bishop of Leicester.
At this late stage with so many criticisms so well expressed, I say simply that disabled people have suffered particular uncertainty and distress. Unfortunately, the changes proposed to their benefits in the Bill add more uncertainty. Yet, when announcing the Bill last year, the Chancellor said that he would exempt some benefits for disabled people and carers from the 1% cap on uprating. Indeed, the exceptions of disability living allowance and the support component of employment and support allowance are to be welcomed as an acknowledgement that disabled people need additional protection in these difficult economic times.
Regrettably, however, these protections do not go far enough to protect disabled people who have collectively experienced an estimated drop in income of £500 million since the emergency Budget of 2010. The reality is that measures in the Bill mean that many disabled people and their carers will experience cuts in the support that is essential if they are to cope with and overcome the barriers and extra costs that they face as a result of their disabilities. A serious concern relates to the changes around the employment and support allowance. The noble Lord, Lord Low of Dalston, has already explained in detail how the disabled will be left worse off. I will not repeat his excellent analysis, except to remind your Lordships that these cuts could cost disabled claimants between £63 and £88 per year.
On previous occasions, I have spoken in the House about the difficulties faced by those who suffer from dystonia. I declare an interest as patron of the Dystonia Society. Dystonia is a neurological condition which affects 70,000 adults and children in the UK. It causes involuntary and sometimes very painful muscle spasms, and is experienced by approximately 20% of disabled people with cerebral palsy. Many sufferers receive employment and support allowance, and for some that is essential support. Dystonia can be unpredictable, with symptoms varying from day to day, which makes regular employment a challenge. However, with adequate support, many will endure their dystonic spasms to prove that they are ready to work at least as well as they can. It seems unfair for the support that they should receive to be further threatened by this Bill. I therefore ask the Minister to consider amending the Bill to ensure that all aspects of the employment and support allowance are uprated to keep pace with inflation. I look forward to his response.
8.36 pm
Lord Best: My Lords, my contribution to this debate considers the implications of the Bill for the nation’s housing. However, in the wider debate I align myself firmly with those who believe that there are better ways to reduce the national deficit than by cutting living standards for the poorest. For example, I note
the announcement today of the Government’s intention to raise more funds—that is, more than were previously planned—through inheritance tax. I have made my own proposals in this House for other measures that would spare those on the lowest incomes; for example, by reducing the non-means-tested single person’s council tax discount, rather than reducing council tax benefit for current recipients. I do not enter this debate with the belief that cuts to the incomes of the very worst-off are an essential part of deficit reduction.
Turning to housing matters, I shall highlight three ways in which housing will be affected by the 1% limit on benefit increases. First, the new 1% cap on increases to local housing allowances—the housing benefit for private sector tenants—will accentuate the reluctance of landlords in the private rented sector to offer new tenancies or renew existing tenancies to those who rely on benefits. The new cap on rent increases on its own might not look significant but we have seen a succession of limitations on local housing allowances and another one is bound to affect landlord attitudes.
If the landlord puts up the rent by more than the 1% limit for the local housing allowance, the shortfall for the tenant to make up—the gap between the actual rent to be paid and the amount received by way of the allowance—will widen, taking more out of the tenant’s meagre income that is needed for other costs. Of course, as landlords will note, these extra pressures on tenants’ incomes make rent arrears more likely. The last thing that these landlords want is the hassle and expense of evictions. I was glad to note the special help through exemption from the 1% LHA cap for areas with the highest rents. But, because of the reductions to other benefits, a household in London is still likely to lose more than £500. This obviously increases vulnerability to getting into trouble with rental payments.
The Government had hoped that the caps and ceilings they have already applied to their support for housing costs would lead to private landlords lowering rents accordingly. But in most areas—very prominently in London and the south of England—rents have gone up instead. Last year, they increased by 7% in London and 3.4% across England and Wales. Landlords have been able to charge these rents because they can let to tenants who are not in receipt of benefits. Because so many new households in reasonably paid jobs are now unable to buy, landlords in much of the country can choose to take in these better-off homeseekers in place of those who need benefits.
As rents rise and the incomes of those in work do not keep up, more working households are requiring help with housing costs. New figures from the Building and Social Housing Foundation show that the proportion of housing benefits going to people in work is rising significantly, and working households now account for 90% of all new claimants. Caps on local housing allowances, therefore, affect the hard-working families whom the Government want to protect. Discouraging private landlords from letting to those in receipt of benefits means more working households, as well as those without a job, being left with nowhere to go.
This brings me to the second likely effect of the Bill: the adverse impact on social housing. The decline in home ownership, and the resultant ability of private
landlords to choose to house those on rather higher incomes, magnifies the importance of the social housing providers. However, I fear that the Bill—not on its own but, as in the private sector, in combination with other reductions in support for tenants—will make things more difficult. A large proportion of housing association and council tenants derive income from benefits due to fall in real value for three years. If the gap between 1% and inflation, particularly inflation of food and fuel prices, is modest, this extra burden may not be too disastrous; if the gap is wide, as the noble Lord, Lord Kirkwood, has set out, those affected will really be struggling by year three. Even so, the 1% uplift is unlikely to be catastrophic; rather, it is the cumulative impact of this latest cut, on top of earlier reductions in help, which is likely to be pretty devastating for several hundred thousand social housing tenants, and therefore for their landlords, too.
I detect a gradual awakening to the magnitude of the problem that one of these changes will bring. This is the “underoccupation penalty” for those deemed to have a spare room. I named this the “bedroom tax” some 18 months ago and, although these words have been strongly criticised, I stand by them. I will spare your Lordships at this late hour another analysis of the truly awful consequences for 660,000 social housing tenants of this penalty, levy or tax. However, already I note that this measure is, understandably but unfairly, turning tenants against their social landlords, who will be required to collect the bedroom tax next April at an average of £14 per week per household. The anxieties of these housing providers about their ability to extract the money from hundreds of thousands of tenants, some of whom may already be in debt, is compounded by the knowledge that the Bill will mean that the real income of many of their tenants is now destined to fall. Combine this with the impending imposition of council tax at 20% to 30% for the same people, and the financial position of social housing tenants, and therefore of social housing, looks increasingly fragile. Throw in the new regime for paying housing benefit in big monthly sums directly to tenants, who face horrendous choices in juggling debts and spending on very low incomes, instead of the benefit going straight to the landlord, and the risk multiplies that rents do not get paid.
To those social housing tenants struggling with these new burdens, including bedroom tax, council tax, and caps on other benefits, the Bill before us may be the final straw. If landlords take the strain because arrears mount, and evictions and emergency housing cost a fortune, the housing associations and local authorities will have less money to support their local communities; to do all the preventive work that helps families to get on; to regenerate the neighbourhoods where they work; and, which brings me to my final point, to fund their production of additional homes.
The final way in which housing is likely to be affected by the Bill relates directly to the commitment of the Department for Communities and Local Government to addressing the very reason why welfare expenditure on housing costs is so high and is continuing to rise, not fall. This underlying cause of the UK’s appalling housing situation, now affecting almost every household in their 20s and 30s, is the acute shortage of
homes that they can afford. This pushes up prices and rents, absorbing disproportionate percentages of income in return for questionable quality.
Housing shortages push up the welfare bill and mean taxpayers having to subsidise more people and to higher levels than in our competitor countries. Each year, the UK’s national housing deficit—the accumulating gap between extra homes required and new homes built—is growing by more than 100,000. This has to be reversed and DCLG Ministers are determined to get more homes built. That policy addresses the cause of rising housing benefit costs rather than the Department for Work and Pensions’ capping of benefits, which treats only the symptoms and simply penalises the victims of housing scarcity. Regrettably, the Bill will make the task of DCLG Ministers more difficult.
Private sector housebuilding must be boosted, but even if housebuilders got back to building at the levels of the boom years before the credit crunch of 2008, we would still be constructing far fewer homes than the number of households formed annually and still be adding to the national housing deficit each year. It is essential that the social housing sector massively boosts its output. I declare my interests as chairman of the Hanover Housing Association and president of the Local Government Association and stress the value of councils themselves building more homes once again.
With a steady source of secure income from their rent rolls, social landlords can borrow at low interest rates and can grow significantly with only modest capital subsidies. The disruption caused by the forthcoming succession of cuts to support for their tenants will hold back this potential for growth. Social landlords are making much increased provision to cover expected rent arrears. This diminishes the resources available for new work. The loss of income also reduces the confidence of their private sector lenders and deters ambitious development programmes which the nation desperately needs.
This is not a good Bill for housing. Directly in the private rented sector and indirectly but very significantly in the social housing sector, this latest instalment in the cumulative impact on very low-income households is likely to mean not just personal hardship for tenants but a negative influence on the whole housing scene and an undermining of other government departments’ genuine efforts to tackle not the symptoms but the cause of this country’s immense housing problems.
8.47 pm
Baroness Massey of Darwen: My Lords, speaking at this point is always something of a challenge as most things have already been very effectively said. I shall be brief but I wish to build on the many brilliant and incisive speeches that have made reference to child poverty. I shall focus my remarks on the potential impact of the Bill on children and I shall conclude that the Bill needs a complete reworking.
I am aware that the Government wish to deliver a new welfare system. The question is: why punish children? Have we not learnt from all evidence, including recent significant reports, that every intervention with young children is the greatest safeguard we have for saving
money in the long term, with reductions in criminal and other risky behaviour and greater achievement by children as they grow up? The noble Baroness, Lady Gardner of Parkes, mentioned economic sense. Surely giving children all the help they can get is economic sense. I submit that it is inaccurate and disrespectful to blame child vulnerability on parents who are deliberately out of work or addicted to drugs and alcohol. These are not the majority of parents.
I recall the responses to the Autumn Statement and to the Bill by charities, particularly those engaged in fighting child poverty. The Children’s Society urged the Government to reconsider the Bill, stating that, if it were passed, millions of children and families would suffer. The Child Poverty Action Group has said that the Bill will increase both absolute and relative child poverty and that the precepts of the Bill are “indefensible”.
I remember, too, as a trustee of of UNICEF UK, report cards on child well-being across the world’s richest countries—the result of research carried out for UNICEF by the Innocenti Research Centre. Report Card 7, published in 2007, provided a picture of child well-being across six dimensions, including material well-being, health and education. Britain did badly across the board. Report Card 10, on measuring child poverty and which covered the period up to 2009, indicated the relationship between the proportion of GDP spent on children and its consequences, and showed that policy choices by Governments significantly affected the lives of the poorest children. As to the UK, the report concluded that even though the UK had missed its own targets to reduce child poverty to 1.7 million by 2010, it had one of the largest reductions in child poverty. This was attributed to the previous Government’s focus on increasing household income.
The research and concerns that I have mentioned, and there are many others, speak for themselves. Why are the Government seemingly ignoring the evidence base for child poverty, ignoring those organisations that work with children and families, and ignoring the calls of families themselves who are worried about how they will feed, clothe and maintain the welfare of their children? Are all these people wrong? I think not.
Barnardo’s, as noble Lords will know, works directly with young people and their families through a network of services across the UK. Barnardo’s states that the Bill will impose real-terms cuts to the incomes of highly vulnerable and disadvantaged families who are receiving in-work or out-of-work benefits. Many such people are in work but on low incomes. The policy will punish children by trapping them in poverty. It is naive to berate certain groups for pushing children into poverty. We need to look at the true, broader picture. For young people aged between 16 and 24 who are seeking jobs, the allowance is £56.25 a week, and many vulnerable young people, including those leaving care, have no family to support them. How are they to cope?
It has been estimated and admitted by the Minister after the Second Reading debate in another place that 200,000 children will be pushed into poverty by the impact of this Bill—a figure mentioned in previous speeches. This is despite the fact that the Government are legally committed to meeting the targets set out in the Child Poverty Act, as my noble friend Lady Lister
of Burtersett, has said. If we take the policies introduced by the Government since they came into office, it can clearly be shown that the poorest half of the population has become poorer, with the poorest losing out the most. At present, 3.6 million live in poverty. The Child Poverty Act places a duty on the Government to end child poverty by 2020. The Institute for Fiscal Studies, however, predicts that by 2020-21 absolute and relative child poverty will be 23% and 24% respectively; therefore, a further 1 million children will have been pushed into poverty by 2020.
The Government decided to cut benefits by linking them to consumer price index, rather than retail price index, inflation. If the Government were to introduce the second of these—the RPI—the poverty figure would grow. Families are suffering from the changes to the hours rules for working tax credit, from recent cuts to housing benefits and from the time-limiting of employment and support allowance for people who are too ill to work—to name but a few issues. In addition, the localisation of support for people on low incomes who pay council tax will be introduced. This will reduce the budgets of many families on out-of-work benefits. The abolition of the Social Fund and its replacement with local schemes seems very likely to be damaging to vulnerable families.
I could go on about reductions in childcare tax credit, increases in VAT, the tax credit for babies under one year-old, the increase-in-earnings taper of working tax credit, caps in housing benefit and the family element of child tax credit, which has been abolished for middle earners. Others have discussed other inequities very comprehensively.
I return to my primary concern about the Bill: it will be detrimental to the well-being of children, especially vulnerable children. The link between benefits and inflation should be preserved; benefits should increase by at least the level of the consumer price index; or the most vulnerable children should be protected by removing from the Bill child benefit, child tax credit and the child elements of universal credit.
The Bill needs a complete reworking. Let us hope that we can do that in Committee. I do not think that children should suffer the potential for greater child poverty. As I said earlier, any deterioration in child health and well-being will cost us dear in future. All children are the future and we jeopardise that at our peril.
8.55 pm
Baroness Sherlock: My Lords, this has been an extraordinary debate. I hope that someone gives the proceedings to the Prime Minister to read. With it, they could give him a DVD of his pre-election appearance on the “Andrew Marr Show” in 2010 when he told the nation that he wanted to,
“take the whole country with me. I don't want to leave anyone behind. The test of a good society is you look after the elderly, the frail, the vulnerable, the poorest in our society. And that test is even more important in difficult times, when difficult decisions have to be taken, than it is in better times”.
We have heard many compelling arguments today against this Bill but I suggest that that statement from the right honourable David Cameron is one of the
best. How far this Government have come from the days when its leader promised to protect the most vulnerable families in financially difficult times. Perhaps coalition has not tempered him after all.
My noble friend Lord McKenzie destroyed the case for this Bill in his powerful opening speech and many noble Lords have backed him up since then. Precious few speakers have disagreed with him. The noble Lord, Lord Bates, did his best, as did the noble Lord, Lord Sheikh, and they both stressed the need for fairness as cuts were being made. Coincidentally, that point was also made by the Chancellor of the Exchequer, George Osborne, when he introduced the Autumn Statement on 5 December 2012 when this Bill was announced. He spoke of the need to find savings in a way that was fair. He said that we need,
“to have a welfare system that is fair to the working people who pay for it”.—[
Official Report
, Commons, 5/12/12; col. 877.]
Just in case the point was not clear, the Guardian reports the Chancellor telling the “Today” programme:
“It is unfair that people listening to this programme going out to work see the neighbour next door with the blinds down because they are on benefits”.
So there we have it: this Bill is intended to penalise the workless in order to be fair to working people. What we have heard today has exposed that statement as being as misleading as it is disgraceful. We are not in a position where the country is populated by workshy people, living in houses where they claim £80,000 in housing benefit a year. The noble Baroness, Lady Gardner of Parkes, may want to know that in fact the limit for housing benefit is £400 a week.
As many noble Lords have noted, contrary to what the Government would have us believe, this Bill leaves behind some of the hardest-working members of our society; 68% of those hit are in work. The Bill will take an average of £165 a year from the pockets of 7 million working households. The Autumn Statement means that the real income of a one-earner working family is set to fall by £534 a year on average in 2015-16. That is without the average £14 a week in bedroom tax coming over the horizon for a third of social sector tenants, or the loss of council tax benefit of at least £5 a week for poor families.
The noble Lord, Lord German, said it is better to take small sums from a large number of people. They may be small sums to some people but I warrant that £10 a week will be sorely missed in those households. The Government’s whole argument about the need to incentivise and reward work is, as the right reverend Prelate the Bishop of Ripon and Leeds said, smoke. In fact I would go further than that. It is really music hall smoke and mirrors—the old-fashioned kind, where you direct the spotlight at the unemployed man in the front row while the accomplice goes round the back and picks the pockets of 40,000 soldiers, 300,000 nurses, 150,000 teachers, 510,000 shop assistants and more than 1 million administrators. This really is playing politics with the lives of hard-pressed families.
What really will be the effects of the Bill? We have heard only too clearly in the moving descriptions of the impact on the most vulnerable from the noble Lord, Lord Adebowale, and in the account from the noble Lord, Lord Best, of the problems being caused
to so many low-income and middle-income families by the changes to housing support. According to Crisis, there has been a 22% increase in the number of people approaching their local authority as homeless in the past two years. Rough sleeping rose by 23% last year in England. The changes already made, and those coming through universal credit, have aggravated the problems caused by the serious shortage of affordable accommodation, as described by my noble friend Lord Whitty. This Bill will play its part by pushing low-income families further into a series of impossible choices. This point was made clearly by my noble friend Lord Touhig in a very comprehensive and powerful speech. Should they pay for food or heating; pay the bills or the rent?
Once again, as we heard from my noble friends Lady Donaghy and Lady Lister, there will be a disproportionate impact on women and children. Recent House of Commons Library research has shown that changes to tax and benefits in the Autumn Statement will hit women four times as hard. Of the £1.065 billion from new direct tax, tax credit and benefit changes in 2014-15 that the Library analysed in the Autumn Statement, an estimated 81%—£867 million—will come from women. This Bill is a key culprit. The list of benefits to be hit even includes statutory maternity pay. I do not think that we would have guessed that from the Chancellor’s description of the Bill’s rationale. I suppose that if I were about to give birth I might well have my blinds drawn at 8 am, but I do not think that was quite what the Chancellor had in mind.
It is not just mothers but children who are being hit. The right reverend Prelate the Bishop of Leicester, in a very powerful and impressive speech, reminded us that we are now in the shocking situation of being on course, according to the IFS and CPAG, to see a million more children in relative poverty by 2020. If the noble Lord, Lord German, thinks this poverty measure favours his Government, I would hate to think what would happen to child poverty with one that did not. I would be grateful if the Minister would tell the House how the Bill fits with section 14 of the coalition agreement, which states:
“We will maintain the goal of ending child poverty in the UK by 2020”.
Given the points made on this by my noble friends Lady Lister and Lady Massey of Darwen, what measures do the Government propose to bring forward to compensate for the effects of the Bill?
We have heard lots of figures today but if we remember no other statistic, let us remember this one from the Children’s Society: 11.5 million children will be adversely affected by the Bill. We heard very descriptively from my noble friend Lady Massey of Darwen about the risks posed to children. As Save the Children noted, the Bill will render parents less able to afford the basics in the short term, and will seriously limit the life chances of their children in the long term.
We also heard very powerful arguments from the noble Baroness, Lady Grey-Thompson, the noble Lord, Lord Low, the right reverend Prelate the Bishop of Ripon and Leeds, my noble friend Lord Macdonald of Tradeston, and others, about the impact of the Bill
on disabled people. The Disability Benefits Consortium states that since the emergency Budget of 2010, disabled people have suffered a £500 million drop in their income. The Government tried originally to claim that they were protecting disabled people by exempting some benefits for disabled people and carers from the reduced uprating. Mr Osborne said in the Autumn Statement debate:
“We will support the vulnerable, so carers’ benefits and disability benefits, including disability elements of tax credits, will be increased in line with inflation”.—[Official Report, Commons, 5/12/12; col. 879.]
The truth was expressed succinctly by Richard Hawkes, the chief executive of Scope, who said:
“This bill doesn’t protect disabled people. In fact, it cuts support for the many disabled people who are looking for work”.
I think that the Minister has some explaining to do.
We are entitled to judge the Government by their own criteria. Has the Prime Minister passed his own test of creating a good society that does not leave behind the poorest in difficult times? When we are debating a Bill which, as my noble friend Lord McKenzie pointed out, means the unemployed will see their JSA rise by 71 pence a week while 8,000 people get an average tax cut of £2,000 per week, noble Lords may judge for themselves. Has the Chancellor passed his own test about being fair to working people? I think we know the answer to that, as well. In the Bill those working people are being asked to pay the price not only of the Government’s indefensible priorities but of the failure of their economic policy.
I was glad that the Minister acknowledged that unemployment is still a problem. The money this Bill will save will be about the same as the increase in social security spending resulting from the forecast rise in unemployment just between the Budget last year and the Autumn Statement. The pain will be felt by millions of households who are already close to the edge. The noble Lord, Lord German, asked us all where we would get the money from. As my noble friend Lady Hollis pointed out in her extraordinarily compelling speech, at heart the issue is simple. The Government have a choice and are choosing to cut payments to struggling households in order to fund a £3 billion tax cut for the highest earners in the country. I look forward to hearing the Minister defend that choice.
9.05 pm
Lord Newby: My Lords, I thank all noble Lords who have taken part in today’s debate. It is an issue about which all participants feel passionately and I can well understand why. I will try to respond to as many questions as possible, but let me begin by reminding the House of the purpose of the Bill. As my noble friend Lady Stowell pointed out in her opening speech, this Government inherited an exceptional fiscal challenge. The financial crisis of 2008-09 resulted in the largest deficit since the Second World War and the UK experienced one of the deepest recessions of any major economy. Even before the recession began, the UK had the highest structural deficit of any country in the G7. This level of public spending was simply not sustainable. There are still tough choices to make. The savings from this Bill provide a significant contribution towards delivering the savings needed to ensure that
spending is on a sustainable path. It is, of course, never an easy decision to take action on welfare spending and I understand only too well that the welfare system provides vital support to millions of people. I also understand that while benefit rates will rise in cash terms, they will be fall in real terms.
In these tough economic times, people have seen significant restraints in their pay across the public and private sectors. With welfare expenditure accounting for £1 in every £4 spent, it is simply unrealistic to think we can achieve the savings we need without taking further action on welfare. We have already had to take tough decisions on welfare spending in this Parliament, yet despite these, more than £200 billion was spent on welfare last year. Under the previous Government, spending for working-age people and children increased by around 60%—equivalent to an extra £1,400 cost per household in Great Britain. This is the context against which this Bill must be judged.
However, in making what we believe are necessary limits in welfare spending, I cannot stress enough that our motivation is not, to quote various noble Lords today, to “demonise”, to “stigmatise”, to brand the poor as undeserving, to impose a harsh ideology on them or to divide and rule. It is simply to help—albeit painfully—provide a sustainable platform for the public finances and the economy going forward. This is something that every citizen of the UK will benefit from in the longer term.
The right reverend Prelate, the Bishop of Ripon and Leeds, asked me for an assurance or statement that the vast majority of benefits claimants were not skivers. I am extremely happy to give such an assurance. Nobody in your Lordships’ House believes that to be the case; all of us know only too many people who are working extremely hard to make ends meet. I particularly acknowledge the point made by the noble Baroness, Lady Donaghy, about people on low incomes often having several jobs and still struggling to make ends meet. I acknowledge that that is the reality for many people in Britain today.
We have to return to the main point. If the savings from this Bill were not delivered here, they would have to be found somewhere else. That would mean additional pressure on other public services. To put this figure into context: £1.9 billion is equivalent to the salaries of about 45,000 nurses or around 40,000 teachers. To put it another way: it is equivalent to 500,000 primary school places. Anybody opposing the Bill needs to explain where the money is coming from.
Baroness Hollis of Heigham: My Lords, did the Minister and his colleagues make the same consideration when they decided to take £3 billion in tax relief and give it back to millionaires? Will that money not also have to be found for the 40,000 nurses and so on? Is he about to tell us?
Lord Newby: Do not worry, my Lords, I am coming to that. The implications of some of the speeches we have heard today are that we should not be making cuts at all, that no civilised society would, even in today’s circumstances, reduce public expenditure. For those who take that view, all I can say is that we simply cannot possibly agree. For those who accept that we
should be reducing the deficit but disagree with these changes, my challenge is and remains this: what would they cut instead? The noble Baroness, Lady Hollis, was clear that she would reduce payments to pensioners—
Baroness Hollis of Heigham: My Lords, what I said was that I would scrutinise the tax relief available for the building up of pensions which costs £32 billion, of which at least £8 billion comes from the fact that people on higher rate incomes get higher rate tax relief. That is what I said I would scrutinise: not money from pensioners, but from the way that pension savings are artificially supported by tax relief, two-thirds of which goes to the better off.
Lord Newby: My Lords, I am extremely grateful to the noble Baroness for correcting me. In that case, and in view of her earlier intervention, I think that what she and the noble Baroness, Lady Sherlock, are saying is that the money will be raised from the millionaires who, in their view, are getting a windfall benefit of £3 billion. I believe that that is what both noble Baronesses have said. But it is clear that either they have not read or they do not believe the report from the Office for Budget Responsibility which suggests that the impact of reducing the higher rate of tax from 50% to 40% is probably £100 million and may be negative. The Government therefore simply do not accept the figures which have been quoted against us. The figure of £1 billion a year to which I think the noble Baronesses have referred was based on an HMRC static comparison. What we know only too well is that given the chance of paying 40% or 50%, the rich—surprise, surprise—change the way in which they order their affairs. There is no pot of gold through a 50% tax rate. My view is that, frankly, the Opposition are all confusion about this.
In the Second Reading debate on the Bill in another place, the right honourable David Miliband was widely praised for saying:
“The Government have projected the cost of all benefits, all tax credits and all tax relief for the next few years, and I am happy to debate priorities within that envelope. I will take the envelope that they have set, but let us have a proper debate about choices, not the total sum—a priorities debate, not an affordability debate”.—[Official Report, Commons, 8/1/13; col. 217.]
The Government have set out their priorities, but frankly, Labour has not begun to set its out. I do not know whether the Opposition agree with David Miliband. I certainly do not know, within the context of overall expenditure cuts, what their priorities will be. We have decided to protect pensioners as a top priority; does Labour agree? We have decided to take millions of people out of income tax as an incentive to work; does Labour agree? We have decided that people on high earnings should no longer get child benefit; does Labour agree? If it does not—and on some of those points, I simply do not know whether it does or not—what other cuts is it proposing in order to keep within the Government’s spending envelope, or within the terms of its own Fiscal Responsibility Act 2010 which committed the Government to halving government borrowing by the 2013-14 financial year. We look forward to hearing the answers, but it is clear that we are not going to hear them today.
Baroness Lister of Burtersett: My Lords, the noble Lord made the point about raising people out of tax, but in my speech I said that that is the least good way of targeting help on low-income families. It is a much worse way than, say, improving child benefit. Can he explain why the Government think that it is better to put money into personal tax allowances rather than protecting the incomes of people who are too poor to pay tax?
9.15 pm
Lord Newby: My Lords, we think it is a basic principle that people on very low incomes should not be paying income tax. It may be a difference of view between this side of the House and the other side, but this is the view that we have taken. This is the policy that we are introducing and we will continue with it.
A number of noble Lords asked why we are proceeding via a legislative route. We believe it is only right that we set out our plans in advance and give as much certainty as possible. The Bill gives certainty on further savings, making a crucial contribution to our plans and helping us to maintain credibility, not least in the markets. We have to keep reminding ourselves that even a one percentage point rise in effective mortgage rates would add £12 billion a year to households’ mortgage interest payments, costing the average household with a mortgage around £1,000 a year. Given the current level of the deficit, such an interest rate rise, in the absence of a credible fiscal policy, is perfectly plausible. The IMF made this element clear when it said in October:
“To anchor market expectations, policymakers need to specify adequately detailed medium-term plans for lowering debt ratios, which must be backed by binding legislation or fiscal frameworks”.
This Bill takes us in that direction.
A number of noble Lords asked what will happen if inflation soars. First, the independent MPC remains committed to maintaining price stability, which is defined by the Government as an inflation target of 2%, as measured by the 12-month increase in the CPI. Although inflation is forecast by the MPC and the Office for Budget Responsibility to be above the 2% target in the near term, it is then forecast to fall back towards the target in the medium term. It is right that the Government make plans based on the best available forecast. However, we know that these are forecasts and targets and we are aware that external factors and unforeseen events can produce a different outcome.
We always monitor the rate of inflation and the impact that it has on households and the wider economy. That is why, in the Autumn Statement, we took action to help households with the cost of living, including cancelling the January fuel duty rise, providing funding for local authorities to freeze council tax and announcing a further increase in the personal allowance. We will continue to monitor the rate of inflation closely, based on monthly data on consumer price inflation published by the Office for National Statistics, and the impact that it has on the cost of living for families. This will continue to be a key consideration for this Government’s policies in the future.
Many noble Lords raised concerns over the impact of this Bill on poverty, particularly child poverty. I will start by saying that any two-dimensional measure for
poverty, which looks at relative income only, is not an adequate way to measure progress on poverty. The most recent decrease in child poverty—a fall of 300,000 in the number of children in relative poverty in 2010—was due to the recession causing a fall in median income and pushing the poverty line down. That is clearly absurd, which is why we are consulting on a better measure of child poverty, one that includes income but goes beyond it to tackle root causes; for example educational failure, problem debt or worklessness.
In terms of how we tackle this issue, it is worth while looking at the success of the previous Government in dealing with child poverty. In the period 2003-04 to 2010, £170 billion was spent on tax credits but there was little or no progress in reducing the levels of child poverty. We in this Government want to look at some of these basic issues around educational failure, problem debt and worklessness. We recognise, as I am sure all noble Lords do, that education is one of the key factors in getting poor children out of poverty. That is why this Government are committed to providing additional funding for disadvantaged pupils through the pupil premium, which will rise by £2.5 billion a year by 2014-15. We are also spending £200 million extra in universal credit to support families with childcare costs. For the first time, this support will be made available to families who work fewer than 16 hours per week, which will mean that 100,000 more working families will be helped with their childcare costs. All two year-olds from low-income households will be able to access 15 hours per week of early education, starting with the poorest 20% in 2013 and extending it to 40% in 2014.
Debt is also a major problem for poor families, who not only take out debt but often take it out at extortionate rates of interest. That is why we are putting in place stronger, more responsive regulation of unsecured lending and other forms of consumer credit to ensure that borrowers are protected and can be confident of getting a fair deal, and why we have given the Financial Conduct Authority power to regulate loan sharks and cap interest from payday lenders for the first time.
However, work is the best route out of poverty. As my noble friend Lady Stowell set out at the start of this debate, the Government are reforming the welfare system to improve incentives for individuals to enter work. Universal credit will not only improve the financial incentives offered for people who want to work but will simplify the benefits system. Replacing the main benefits with one single payment and removing the complex system of hours rules and different tapers that currently exist means that claimants will understand that they are better off getting a job and increasing their hours. Under universal credit, 3.1 million households will benefit by an average of £39 a week and up to 250,000 children will be taken out of poverty. Any household whose migration to universal credit is initiated by the DWP will receive transitional protection, and there will be no cash losers from the policy.
A number of noble Lords have spoken eloquently about issues facing the disabled. I repeat that we have protected those benefits designed to reflect the additional costs that disabled people face as a result of their disability. Of course, as we have heard, this does not
mean that no disabled people will be affected. In common with other working-age recipients, many disabled people will also be claiming benefits that include help towards everyday living expenses or housing costs, but those benefits for the extra costs of disability are protected. I am afraid that I cannot give the noble Lord, Lord Macdonald of Tradeston, the assurance that he is seeking in respect of ESA, but I suspect he is not too surprised about that.
Government policy towards disability is not limited to benefit levels. We will shortly be publishing the most comprehensive analysis of available data about disability since 2005, entitled Fulfilling Potential: Building a Deeper Understanding of Disability in the UK Today. This will help inform the next stage of our disability strategy: the development of actions, outcomes and indicators. It will help increase public understanding, change attitudes and enhance the commitment to improving the lives of disabled people. We are setting up a new disability action alliance, bringing together organisations of disabled people and organisations from across government and the public, private, voluntary and community sectors. This will take forward practical actions at both the national and local level, making a real difference to the lives of disabled people. We will publish a further strategic document and action plan to include the alliance actions as well as actions across government in the spring.
There have been a number of questions about the cumulative impact of the various changes that have been made in recent years and why the Government have not produced an analysis of these to the extent that people would like. Looking at the cumulative impact of tax, tax credit and benefit reforms since the June 2010 Budget, the top 20% of households continue to make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind from public services. So far, HMT’s analysis has not included universal credit. Separate analysis shows that three-quarters of the gainers from UC are in the bottom 40% of the income distribution.
As noble Lords know, the analysis in this area is extremely complicated, and breaking down the results in detail is extraordinary difficult to do accurately, if not impossible. Similarly, not all policy changes can be modelled robustly, and the IFS has acknowledged that the effects of dynamic reforms such as those to disability living allowance and housing benefit cannot be precisely modelled. In these circumstances, it would be simply irresponsible for the Government to do so.
I shall try to respond to a number of specific questions as quickly as I might. The noble Lord, Lord German, asked me to commit the Government to no further welfare cuts in this Parliament. I remind him that at the Autumn Statement 2012, the Government said that detailed spending plans for 2015 and 2016 would be set in the first half of this year. We cannot prejudge the outcome. By “first half of this year”, we mean the back half of the first half of this year.
The noble Lord, Lord Bates, referred to the living wage. The Government support the idea of the living wage. Civil servants are paid the living wage; and contractors, for example at the DWP, are paid the living wage. My guess is that the living wage will increasingly become the norm, particularly in London.
The right reverend Prelate the Bishop of Ripon and Leeds asked about asylum seekers. Asylum-seeker benefit rates are a matter for the Home Office and are not within the scope of the Bill. I will draw his remarks to the attention of my colleagues in the Home Office, because I know that the right reverend Prelate feels strongly about that matter.
The noble Lords, Lord Kirkwood, Lord Whitty and Lord Best, and the noble Baronesses, Lady Donaghy and Lady Lister, in various ways talked about how the growing disparity between benefits and earnings impacts among other things on the housing market. There are very long-term, secular changes in the relationship between benefits and earnings and, as the noble Lord, Lord Whitty, said, there are long-term failings in the operation of the housing market. We will have many opportunities to discuss these, no doubt in Committee but more generally in your Lordships’ House. I am sorry that I have not been able to deal with them tonight. There are quite a number of issues that noble Lords have raised this evening that I have been unable to cover, and I look forward to debating them in Committee.
Welfare spending accounts for more than a quarter of all public spending. In these touch economic times, when people across the public and private sectors have seen significant restraint in their pay, this Bill finds the right balance between finding savings from welfare while ensuring that benefits and tax credits continue to be increased in cash terms. I commend the Bill to the House.
Bill read a second time and committed to a Committee of the Whole House.