We have seen dramatic proof of the importance of that in recent years. Every year, within my memory, reputable outside experts—the IFS and others—have predicted another increase in child poverty and, so far, at least, every year we have seen a decline in child poverty. That is because—in my view; I do not know whether it is the Government’s view—the dynamic effects can be much more important than the static ones.

Baroness Lister of Burtersett: I said to the Minister that I am quite happy for any estimates of the impact on child poverty to be qualified with reference to possible dynamic effects. Has the department assessed the likely impact on child poverty, taking account of the dynamic effects it hopes to see as a result of the cap?

Lord Freud: I am clearly not in a position to comment on the work that we do, but I can say that estimating dynamic effects is extraordinarily difficult. We are working on improving how we do that. One of the reasons why we can often get into sterile debates is

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that getting hold of the real figures and the real behavioural impacts is very difficult. I quoted our child poverty experience. The latest

Universal credit at


, in which we outlined theses new approaches, set out big behavioural changes. Many more people—13% more—are going into work, compared with the comparable JSA. That is an example of behavioural effects that is very difficult for us to pre-estimate.

Amendments 92, 93 and 94 are tabled by the noble Baronesses, Lady Meacher, Lady Sherlock, Lady Pitkeathley and Lady Lister, the noble Lords, Lord McKenzie and Lord Kirkwood, and the Earl of Listowel. These amendments would require the Secretary of State, when reviewing the level of the benefit cap, to have regard to any impacts on disabled people, their families and carers; the relationship between the level of the cap and median household income; the promotion of the welfare of children in the United Kingdom; households affected by the cap; and public authorities, local authorities and registered social landlords.

The noble Baroness, Lady Sherlock, asked whether we will go on reducing the cap. The Bill requires the Secretary of State to review the level of the cap at least once during a Parliament and provides him with the power to review it at any other time if he considers it appropriate. We believe that this provides the most effective means of ensuring that the cap stays at the appropriate level, while also providing the stability that households on benefits require. Any changes to the benefit cap level will be sensitive to its key principles of maximising work incentives, bringing fairness for working households and providing a reasonable level of support for capped households.

The noble Baroness, Lady Pitkeathley, spoke about carers. I emphasise that the Government recognise the contribution carers make to society. I will deal with carers when discussing the amendment that appears in a later grouping.

The power to review the level of the cap is necessarily broad and has been drafted to allow the Secretary of State to take into account any matters he sees relevant—for example, the wider impacts on families and children. I do not think it right to prescribe in legislation any particular factor which must be considered as part of this review.

Amendment 94 requires the Secretary of State when reviewing the level of the benefit cap to take into account the impact on disabled people, their families and carers. As I mentioned, there are exemptions from the cap for people who are a member of a household that includes somebody who is entitled to attendance allowance, disability living allowance and PIP.

That has been in place since the cap’s introduction and reflects the fact that these benefits are paid in recognition of the extra costs that disability can bring. There is also an exemption for those who are entitled to the support component, and the equivalent in UC, whose health conditions mean that they are unable to undertake any work-related activities. Those exemptions are not changing.

The new provisions will allow the Secretary of State the ability to consider the context of the cap and its level in a broad and balanced way. For example,

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he may take into account, although he is not limited to these, factors such as: earnings, housing costs and the wider impact on disabled people, families and carers.

Lord Kirkwood of Kirkhope: How does this fit into the annual uprating statement? The Minister has just said that the Secretary of State, who has this power, must do it once in every five-year period. There is an annual social security uprating where all these things are considered. Surely we are not going to have, at random in the middle of the year, the Government coming up with a judgment on the cap that is in isolation from the rest of the established procedures for uprating benefits.

Lord Freud: The established procedures, of course, are basically to go in line with CPI; this is a much broader look than that, as I have tried to describe. While we have safeguarded those with illness or disability, we do not think it right that in undertaking a review of the level of the cap the Secretary of State should have a legislative requirement to take into account any extra impacts on specific groups.

Baroness Hollis of Heigham: If the Minister says—quite rightly and decently, and I am sure that the whole House will support him in this—that he will exempt people who are in the ESA support group because the Government acknowledge that they cannot be expected to work, and therefore the issue of work incentives does not apply, why does he not apply the same reasoning to lone parents with children under three or to the carers in full-time unwaged work that my noble friend Lady Pitkeathley described? The Government accept that those two groups are effectively out of the labour market in exactly the same way as the support group, yet one, decently, is exempted from the cap, while the other two, indecently, are not.

Lord Freud: There is a difference between having a specific provision that does not require people to work and having one that actually financially incentivises people to work. That is the difference. As the noble Baroness pointed out, we do not require anyone to go to work with a child under three, but people often go into work with a child much younger than that. When people look at this measure on balance, they may think that it is the appropriate thing for them. That is my best answer to this question.

This is a peculiar process and I am running incredibly late now, but I think that noble Lords would prefer me to finish. I have just had so much dialogue, and that is rather unusual.

The Lord Bishop of Durham: Will the Minister accept that he has just proved my point that children get ignored? I asked him a specific question about whether or not that happens, and he has not answered it.

Lord Freud: I apologise to the right reverend Prelate. The only reason why I have not answered by now is that I am taking an intolerably long time to get through this speech. I will come to his point. I crave noble Lords’ indulgence to let me get through and then, right at the end, if they have some outstanding questions, we will have another—

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A noble Baroness: Pass.

Lord Freud: Thank you.

The revised cap levels are being set to create a strong work incentive to ensure fairness for both working households and those receiving out-of-work benefits, while providing a safety net of support for the most vulnerable. Amendment 92 would require the Secretary of State to have regard to the relationship between the level of the cap and median household income—a point reinforced by the noble Lord, Lord Beecham. Additionally, it would require that the impact on households affected by the cap was considered along with the financial impact on public authorities, local authorities and registered social landlords.

In future, when reviewing the levels of the cap, the Secretary of State must take into account the national economic situation and, where necessary, he will be able to consider any other matters that he might consider appropriate. Earnings and housing costs may be very much a part of this, but other factors also may be, such as inflation, benefit rates, the strength of the labour market and any other matters that may be crucial and relevant at the right time. Any decision when taken in the round will balance these factors with the impacts of the cap on its principle aims: to incentivise work and bring greater fairness to those in work while maintaining support for the most vulnerable.

Reinstating any direct link between future cap levels and the median household income undermines the changes we are introducing. Many working families earn less than the level of average earnings of £26,000 a year. It is important that relevant matters are looked at in the round. We want the Secretary of State to have the flexibility to consider a broad range of social and economic factors when reviewing the level of the cap in the future. Legislating for these specific factors to be considered unnecessarily reduces the scope for that.

Amendment 93, tabled by the noble Baroness, Lady Lister, and the noble Lord, Lord Kirkwood, would require the Secretary of State to take into account the need to safeguard and promote the welfare of children when reviewing the cap. I reiterate that we consider the impacts with regard to all relevant legal obligations when formulating the provisions of the Bill.

Now I move, at last, to the point made by the right reverend Prelate the Bishop of Durham. The welfare of children is at the heart of our reforms. It is important that children grow up recognising the value of work. Work provides purpose, responsibility and role models for children. The evidence shows that, for families responding to work incentives, the cap provided clear positive impacts on children and family lives through additional income and from the long-term positive role model effect provided by parents being in employment. There is clear evidence that children in workless families suffer worse educational outcomes compared to those in working families. That is why, as we discussed earlier, we are introducing new measures of worklessness and educational attainment.

The benefit cap is a key part of our aim to reduce long-term welfare dependency. The revised cap levels are being set to create a strong work incentive, ensuring fairness for working households and those receiving

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out-of-work benefits. These principles will guide a review of the cap levels in the future. It means the Government will be able to review the level of the cap in the light of any significant economic events that occur. The clause as drafted provides the best approach to allow for any future review to set the cap at the most appropriate level.

Before I ask the noble Baroness to withdraw her amendment, I await to be intervened upon.

Baroness Lister of Burtersett: My Lords, I will do so on the question of the welfare of children. First, there is no difference between myself and my Front Bench on this issue—there may be on some issues but not on this one. The noble Lord has not dealt with the point I made when I referred to what the noble and learned Baroness, Lady Hale, said, although I did not do so simply because she said it. Noble Lords have quoted from the IFS peer review, which showed that the great majority of those affected by the cap did not move into paid work; indeed, the House of Commons Library said:

“There is no general consensus that the … cap … is proving an effective means of moving claimants into work”.

My noble friend also made a point about those who are not expected to move into paid work anyway. The point is: what happens to the welfare of children in those households which are still out of work? It cannot be in their best interest, which is supposed to be a primary consideration, to reduce the incomes of their parents further and further below the poverty line.

I also quite accept what was said about role models and the value of work, and so forth, but I remind the Minister that in one of our earlier debates I referred to some research from the University of Bath. That showed that where a lone mother goes into work then cannot maintain that job for whatever reason in an insecure labour market and falls out of work again, it raises big questions in those children’s minds about the value of work, and that it can be totally counterproductive if you push people into paid work in a way that is not helpful to them and their families.

Lord Freud: On the last point, there are always particular cases such as those referred to by the noble Baroness, but the broad evidence shows that on balance children gain from their parents going to work. One other point is that noble Lords may not have clocked how the benefit cap works. Quite a lot of people have rather small amounts—£50 or so—capped. In many cases, if you do a small amount of work and earn £50 over a week, we cannot take the money away from you twice—we have capped you at that level—and those extra earnings are not then withdrawn, as they would be in many cases under the legacy system. We do not have data on that as they are very hard to get, but it would not surprise me if quite a lot of people earn small amounts of money which, in most cases, is 100% in their pocket.

5.30 pm

The Earl of Listowel: My Lords, I am grateful to the Minister for the care with which he is responding to these concerns, particularly about children. He will be

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aware of a recent small study dated November 2015 from the University of Manchester on the impact of the bedroom tax. It found that children were hungry and were having difficulty in concentrating at school. The response from the Minister’s department was that this was a small study which did not fit the larger picture. I would be grateful if, before Report, he could send a letter setting out what research will be undertaken in the 12 months following the implementation of this provision. What research will be commissioned to look carefully into the impact on children? I take his point that many children will benefit from their parents going into work but I am worried about those who do not.

Lord Freud: It was a small report on, I think, 14 children, and we aim to look at things on a much safer basis. I ask the noble Baroness to withdraw her amendment.

Baroness Sherlock: My Lords, I thank all noble Lords who have contributed to this extensive debate. There are three more groups to come on the same subject, so we are going to do it very good justice. Given the extent of the debate, I will not try to respond to all the many points that were made. I am grateful to all those who have contributed, particularly in trying to highlight the impact of this lower benefit cap on a number of different groups: on single parents, as the noble Baroness, Lady Manzoor, said; on disabled people, as the noble Baroness, Lady Meacher, said; on carers, as the right reverend Prelate the Bishop of Durham and my noble friend Lady Pitkeathley pointed out; and on children.

I decline to rise to the noble Lord, Lord Blencathra, and engage in political debates about who said what and when, but I confirm that it is the policy of the Labour Front Bench in both this House and another place that we oppose the reduction in the benefit cap to the new levels. I was hoping to respond to the noble Lord, Lord Lansley, but, sadly, he is not in his place. Perhaps when he comes to read this debate he will start to reflect that it is important for us as a House to understand what the Government are trying to do here. They have always offered two arguments for this measure: one is that it is related to work incentives; the second is that it is fair.

On work incentives, the noble Lord may not be aware that significant work incentives are already built into the system. In fact, the CPAG did a report on this very recently showing how much better off families with children already are if they work. The point is that this is comparing individual wages and household income. Someone may earn a certain amount in wages but how much the household needs depends on where they live, how many children there are, whether they have a disability and whether they are carers. As my noble friend Lord Beecham said, this is primarily driven by high housing costs in the private sector. Most people do not get anything like these amounts of money in benefits. Where they do, it is almost always because they have very high rents. That is not their fault; it is the fault of the state, which has failed to get a grip on the housing market, have enough supply and

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make sure that people can afford to rent in places where there are jobs without driving themselves into this situation. I urge the Government to consider that very carefully.

The point about the comparator really matters. Whether or not the Government are going to set it at 50% or something else, there needs to be a way of understanding at what point the Government would do this. I can create brilliant work incentives tomorrow: I will abolish all benefits. That would be a fantastic work incentive but it would not be reasonable. The point of a social security system is to support people who cannot work—to enable them to meet their needs and feed their children—and then, where appropriate, to support them in work. We have to get an appropriate balance between, on the one hand, the needs of families, and particularly of children and vulnerable people, and the ability of the state to afford it; and, on the other hand, work incentives.

It is not unreasonable for this House to want to understand how the Government reach that judgment. Once you take away any external benchmark, it can simply become an annual whim. That is not appropriate, but it is completely appropriate for this House not to get into the micropolitics but to say, “We want to understand the impact on individual families, and we press the Government to make clear their thinking so that each year we can judge what is a fair amount of money to give to families”, as the noble Lord, Lord Kirkwood, pointed out.

In this country we have a very long tradition of Parliament looking carefully at what families need to survive and building up components of a social security system to address the different sets of needs. The benefit cap overrides all that, so it matters very much how it is constructed and it matters very much that the Government are transparent and accountable in the way that they go about creating it.

I shall not go into the other areas as we have a number of different debates coming up, but on the question of work incentives I point out that 85% of those who are capped at the moment are not in categories required to work, as we will come on to look at in two of the next three groups. Given all that has gone before and given all that we have yet to come, I beg leave to withdraw the amendment.

Amendment 72 withdrawn.

Amendment 73

Moved by Lord Best

73: Clause 7, page 8, line 37, at end insert—

“(5C) Regulations under this section shall provide for an exception to the benefit cap for a person or couple who have been placed in temporary accommodation by a local housing authority in pursuance of its duties under section 188, 190, 193 or 195 of the Housing Act 1996.

(5D) The period for which the exception in subsection (5C) applies shall not exceed 39 weeks beginning with the date on which accommodation was first provided under any of the duties specified.”

Lord Best (CB): My Lords, the noble Earl, Lord Listowel, and the noble Baroness, Lady Manzoor, have added their names to Amendment 73, which covers similar ground to Amendments 86 and 90A in

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the same group. I am grateful to both Shelter, which has just released an important report on the alarming rise in homelessness, and the Local Government Association—I declare my interest as a vice-president of the LGA—for their input.

The amendment addresses one specific housing aspect of the proposed new benefit cap. Of course, it is because of the high level of housing costs that, in so many cases, the benefits to which some families are currently entitled will exceed the Government’s new cap, as several noble Lords have already remarked. If the cap is set at £385 per week outside London, then the family in south Wales paying £65 per week for their council house is unlikely to be adversely affected. However, where an identical family lives in private rented accommodation in the south-east with a rent of £250 per week—and for a family with more than two children rents can sometimes be appreciably higher—they are in big trouble.

Earlier pleas for local, not national, caps have led to a differential for London, as we heard in our earlier discussion, but one level for London and one for every other region is pretty crude. The position is in fact rather worse in much of London, where a family may face a rent of £350 per week, as against a proposed new cap of £440 per week for all support—that is, leaving the family with just £90 per week to cover everything else after paying their rent. It is high housing costs that so often cause the problem of high benefit costs. This is an overarching problem facing the cap and it is going to cause huge problems for tenants, landlords and the Government.

This amendment covers only a narrow aspect of the problem but it is a highly significant one. It covers families and individuals placed in temporary accommodation by their local authority. Families accepted as homeless by local authorities under the Housing Act 1996 have to be found somewhere to live. To meet their statutory duty to house these homeless households, councils make use of temporary accommodation, which is usually provided in the private sector via a housing association or directly by a private landlord. Not only will the rent for this temporary accommodation be relatively high because of the high turnover and high management costs but councils have to add an administrative charge on top. The total rent, therefore, is likely to mean that the family’s requirement for support takes them well over the new cap.

However, the family cannot go anywhere else—they are homeless, or just about to be so—and must accept the temporary accommodation on offer. They cannot negotiate over the rent: it is predetermined for them. They are stuck, but often only temporarily. Hopefully, in due course, with help from the local authority and often from one of the homelessness charities, the family will find its way into somewhere more permanent and at a more reasonable rent. However, while in the temporary accommodation, there is no option but for the rent to be paid, even though this would absorb almost all available support within the cap.

This amendment, therefore, looks at an exemption for those in temporary accommodation for a fixed period of 39 weeks. This is the same period of grace as for those who have lost their job. Those who are made

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redundant or whose employer goes bust, or those who lose their job for other reasons, need time to get a new job. It would be counterproductive to penalise a tenant by imposing an immediate benefit cap with the likely outcome of them incurring debt and/or having to move away from work opportunities. In just the same way, those who lose their home require a few weeks, at least, to secure a new place to live.

The Minister will well remember the amendment I proposed to the previous Welfare Reform Bill for a period of grace from the benefit cap for those who lost their job. On that occasion, the Minister generously decided to improve upon my suggestion of a 26-week period of grace, substituting a 39-week period. I now look forward to the same treatment for those who have lost their home and had to move to temporary accommodation. These people too need a period of grace to get back on track. The 39-week grace period would apply when a council accepts a household as homeless or about to become so. This would enable the rent to be covered in their temporary accommodation for a sufficient period, and in many cases enable them to secure new employment and/or find a proper home, hopefully at a more reasonable rent.

I am familiar with one case where a family lost their shorthold tenancy in Hillingdon. The landlord decided not to renew their tenancy—I guess because he was planning to raise the rent above the level for which housing benefit and local housing allowance has been available. The family became homeless and were housed in temporary accommodation in Slough. The two children remained at their schools in Hillingdon by getting up extremely early and getting home very late, with their mother also travelling daily from Slough to desperately try to retain links to job opportunities in Hillingdon. She succeeded, somewhat against the odds, and the family is settled, albeit paying a higher rent, back in their home borough.

A period of grace prevents drastic decisions being taken to move families to a low-cost area miles away, far from work opportunities, schools and networks of family and friends. The 39-week grace period makes complete sense, as the Minister’s earlier amendment did, which provides this same period of grace for those who lose their job. A precedent exists already for exempting a family that has to move in dire circumstances. This is the exemption for households supported in temporary accommodation because they are fleeing domestic violence. There are precedents, therefore, both for a 39-week grace period and for exempting vulnerable groups that have to go into temporary accommodation.

I am rather nervous the Minister may respond that, as with other cases where a household has difficulties with support for housing costs, the allocation of funds to local authorities for discretionary housing payments, or DHPs, could take the strain. I know that the noble Lord, Lord Kerslake, will pick up on this point, with particular reference to the difficulties of stretching the rationed DHPs in London. Picking up the cost of rent for families in temporary accommodation whose benefits are capped already absorbs up to 60% of the discretionary housing payments in some London boroughs. The lower cap will mean an additional call on DHPs that

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will be positively overwhelming in the hardest-pressed places, bearing in mind that these discretionary payments are meant to fill so many other gaps, not least where all are agreed that the so-called bedroom tax should not be payable. Moreover, it is hugely increasing the administrative burden on councils to ask them to exercise discretion on a case-by-case basis on a much bigger scale.

The other grounds on which the Minister might suggest that this amendment is not a good idea is that the new lower cap will coerce councils into negotiating lower rents with landlords. But local authorities are already finding it extremely difficult to persuade landlords to enter into these temporary accommodation agreements, and the existing financial system—quite properly aiming to keep families out of bed-and-breakfast hotels—already strongly incentivises councils to get the rents down. Therefore, I do not think that there is mileage in this argument.

Would there be a cost to government in allowing a period of exemption from the cap for those placed in temporary accommodation? Yes, but this is time-limited and a concession that represents a trifling expenditure in the wider context and saves huge costs—perhaps lasting a lifetime—if councils, in fulfilling their statutory duties, feel compelled to dispatch families to the cheapest areas of the country where their employment prospects are much lower, children are likely to be badly hit by changing schools and all the family will miss local networks of friends and family. I hope very much that this amendment appeals to the Minister. I beg to move.

5.45 pm

Lord Kerslake (CB): My Lords, I declare my interests as chair of Peabody and president of the Local Government Association.

My amendment is very similar to the other two amendments in this group, and I will not repeat what I think was a very compelling argument made by my noble friend Lord Best. What I would like to do this evening is focus on three key reasons why I think that the Government should reconsider their approach to this issue. The first reason is the rising level of homelessness, the second is the quadrupling of the number of people who will be caught by the cap and the third is the inadequacy, as my noble friend Lord Best has said, of the discretionary housing payments fund.

Let me deal with the issue of rising homelessness first. My noble friend Lord Best referred to the recent report by Shelter. This report found that the number of children in temporary accommodation is at a seven-year high. The total number of people in temporary accommodation from the period of July to September 2015 was 68,500. That was a 12.5% increase on the year before. So we are clearly experiencing a significant rise in the levels of homelessness. The effect of this will be that, this Christmas, Shelter estimates that some 103,000 families will be in either bed and breakfasts, hostels or temporary rented accommodation. That will be a very grim Christmas for those families. Of those families, something like one in four are living in a different area from the area that they previously lived in. That means that they are away from their

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children’s schools and family support. In London, that figure is one in three. This is a very significant issue that is growing in its scale and impact.

The second issue I referred to is the number of people who will be caught by the cap. As has already been said, that number is likely to quadruple, adding an extra 90,000 people. Therefore, there will be two effects on the issue that we are speaking about, and that in turn will impact on the financial consequences for local government. It is important to say that the people involved here do not have any real choices. The circumstances they face—losing their shorthold tenancies or family break-up—will undoubtedly lead them to a position where they need to move and move quickly. Similarly, local authorities will have little choice, given the limited accommodation that they have available to them to put people into temporary accommodation, even though the management costs of that accommodation are higher. So we face the situation where there is likely to be rising homelessness, a quadrupling of the numbers caught by the cap and people, through having no great choices of their own, needing to go into temporary accommodation with higher costs.

In the past, the response has been that the discretionary housing payments fund will cover this. The evidence produced, again by Shelter, suggests that that is unlikely to be the case. We know that, in London, the scale of the costs through the DHP funding is already around £4 million. It has been calculated by Shelter that for one local authority alone, Tower Hamlets, this could add a further £2 million per annum in terms of costs. I do not believe that the discretionary housing payments fund will be the answer to this issue. It will squeeze out the other reasons why local authorities need to use this fund. They will therefore be faced with a choice of either compelling families to move further away so that the cost is lower or, alternatively, dipping into resources that they have for other purposes. We will face an increasing squeeze on those local authorities that they will not be able to cope with.

The Minister may say that DHP funding is rising. Indeed, it is. It will rise from £165 million this year to £185 million in 2017-18. However, it falls to £140 million in 2021. Therefore, this fund goes up, but it goes down again, whereas the pressures that I have spoken about are inexorably rising. A simple way out of this issue is to exempt families in temporary accommodation, as has been proposed. This recognises the reality that there is little choice and that, if we ignore this issue, we will increase the pressure on local authorities to a point where it will damage the finances of those authorities and the prospects of those families.

Lord McKenzie of Luton: My Lords, I speak to Amendment 86, which is in my name and that of my noble friend Lady Sherlock. I also speak in support of Amendment 73 moved by the noble Lord, Lord Best, and Amendment 90A in the name of the noble Lord, Lord Kerslake. As we have heard, regardless of whether the benefit cap has played a role, local authorities remain legally obliged to rehouse families who are demonstrably homeless through no fault of their own, are vulnerable in some way or are in priority need for rehousing.

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Families will be placed in temporary accommodation while a council decides whether it owes them a rehousing duty and then until a settled home can be found. For some families, the wait for rehousing can be considerable. I note that the noble Lord, Lord Best, has a 39-week grace period. I understand that that is likely to be sufficient in the overwhelming majority of cases but not in all cases, particularly in London. While in temporary accommodation, councils charge families rent to cover their own costs and expenses, and this is commonly paid for by housing benefit. In some cases, councils have to top up additional costs out of their own funds or, as we have heard, the limited pot of discretionary housing payments.

Temporary accommodation is generally leased by local authorities from the private sector at a premium, placing a considerable burden on them. Councils are already struggling to secure enough temporary accommodation as a result of the combined effect of limited funding and a shortage of self-contained accommodation. This is already leading to an increase in bed-and-breakfast use or people being rehoused away from their local area. The lower benefit cap will increase demand for homelessness services and exacerbate the pressure on the local authority supply of temporary accommodation. With more homeless families affected by the cap, local authorities are likely to be forced into further subsidising the cost of temporary accommodation. This will be difficult for cash-strapped councils, increasing the incentive to place families in the cheapest areas far away from their support networks.

It will also make it harder to permanently rehouse homeless families, as the benefit cap will make alternative housing options unaffordable. For larger families, even social housing will be subject to the cap. The policy therefore risks the perverse scenario in which families are made homeless because of the benefit cap and trapped in the limbo of temporary accommodation by the benefit cap at the expense of the public purse. The amount that can be reimbursed through the local housing allowance is limited to £500 a week, which means that other costs over and above that amount must be met by local authorities. In some cases, this will come from funding for discretionary housing payments, but often the necessary funds will have to come from elsewhere, given that DHP funds are in such short supply in the context of seemingly insatiable demand.

We know that the Government have declined to collect statistics which might help them measure the extent to which any purported savings from capping household benefits are simply being shifted on to local authorities in the form of additional homelessness costs. Our honourable friend Emily Thornberry MP sent freedom of information requests to every local authority in London over the summer and the findings throw doubt on the idea of the cap as a savings measure.

In the first year following the introduction of the cap, London councils spent a combined total of £19.2 million supporting households which had been hit by it. In the second year, this rose to £23.3 million altogether. Some boroughs spend more than 80% of their total DHP allocations on supporting capped households, and in most boroughs the proportion is increasing each year. To date, local authorities in the

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capital have spent almost £47 million in DHP funding as a direct result of the benefit cap and it is likely that this is just the tip of the iceberg in terms of the overall costs involved. Reliance on temporary accommodation is a significant driver of these additional costs.

As we have heard, across London more than a quarter of households currently affected by the benefit cap are living in temporary accommodation and in some boroughs it is much higher. In Waltham Forest, apparently a staggering 58% of capped households live in temporary accommodation. This compares with less than 1.5% of the overall population of people claiming housing benefit. The disproportionate presence of families in temporary accommodation among households affected by the cap is a huge issue for local authority spending. It is also a real source of human misery as, increasingly, councils are having to house homeless families in temporary accommodation outside their area, and sometimes many miles away from their support networks and their children’s schools.

Our amendment would exempt newly homeless households from the benefit cap. This would allow councils to continue to procure nearby temporary accommodation and make it easier for them to move households into affordable accommodation. It will also help councils focus their DHPs and their own budgets on homelessness prevention. If the Government are serious about cutting back on public expenditure associated with the benefit system, and in targeting the benefit cap at families in a position to make choices about where they can afford to live, it is hard to see why they should argue against exempting homeless families being housed in temporary accommodation.

Lord Freud: My Lords, these amendments seek to exempt people in temporary accommodation from the benefit cap. I cannot agree that it is appropriate to have a blanket exemption from the cap for all those living in temporary accommodation, even if it is time limited in the case of Amendment 73. Rather, I believe that the best approach is to provide support so that people may better address their barriers to work. My challenge to the noble Lord, Lord Best, is: if there were to be a 39-week exemption, how would that not have a perverse incentive on people staying in temporary accommodation longer term if it is likely that the cap will apply to them when they move? That is the reason for our approach.

Discretionary housing payments are available from local authorities for those households who need additional support in adjusting to the cap. We have made £800 million available over the next five years for all the welfare reforms. However, in particular areas, one of which is London, this will be a substantial element. In the Autumn Statement, it was announced that further DHP funding will be made available for the most vulnerable people, including those who may be in supported accommodation. In 2016-17 it will go up from the current level to £150 million, and the allocation of those funds reflects the new measures we are bringing in, as does the timing of their introduction.

We have already made provision to support the most vulnerable people who might be affected by the cap. Housing benefit paid to households in specified

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accommodation is disregarded from the benefit cap and we have included refuges within the definition of “specified accommodation”. The disregard applies to benefit cap cases under both housing benefit and universal credit. While this does not mean that these households are exempt, by not including housing benefit in the calculation we expect that the vast majority of these vulnerable cases will not be affected by the benefit cap.

Finally, from April 2017 the weekly management fee, currently £40 in London and £60 elsewhere, will be abolished and replaced with a grant that devolves this funding to local authorities. Unlike the existing management fee, the new grant will not count towards the benefit cap and will help local authorities tackle homelessness more effectively. I would therefore ask the noble Lord to withdraw his amendment.

6 pm

The Earl of Listowel: My Lords, I would be grateful if the Minister provided a little detail on the research that will be coming forward after the Bill is enacted so that I and we can see its impact on children. For instance, for some time now the University of East London has been researching the issue of family homelessness. Is the Minister thinking of talking to such institutions? Going back to the previous debate, it is important to get some high quality research that goes into the detail and granularity of the impacts of these measures.

Lord Freud: The noble Earl will be aware that an enormous amount of research is conducted in this area. I will write to him with anything specific that I can on our research proposals.

Lord Best: I thank all noble Lords who have participated in this mini debate, and particularly the noble Lords, Lord McKenzie of Luton and Lord Kerslake, for their contributions to one of the key housing aspects of the wider debate on the benefit cap. The noble Lord has found a fundamental flaw, as he sees it, in the argument in favour of temporary accommodation being exempted: that there will be no incentive for those who are placed in such accommodation to move for the full 39 weeks, because as soon as they do they will no longer be exempt from the cap. This is a consideration I shall have to ponder in some depth, and I am grateful to the noble Lord for explaining it. I fear that the position already is not that the vast majority of people will not be affected by this arrangement, because we know that an awful lot of families are being moved well away from the place where they are most likely to get a job, where their children go to school and where they have their family and friends close by to help them. A high proportion of families are now having to move a long way away because of the need to keep down the cost of temporary accommodation. We will have to think some more about this issue, but in the mean time, I beg leave to withdraw the amendment.

Amendment 73 withdrawn.

Amendment 74 not moved.

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Amendment 75

Moved by Baroness Meacher

75: Clause 7, page 9, leave out lines 1 and 2

Baroness Meacher: My Lords, in moving Amendment 75 I shall speak also to Amendments 78, 80, 81 and 83. The amendments seek to exempt those in receipt of carer’s allowance or disability benefits from the cap. I shall talk about the two groups, carers and disabled claimants.

As Carers UK has pointed out, unpaid carers save the state an estimated £132 billion per year. Clause 7 includes just one of a number of measures which will have a damaging impact on the finances of the 6.5 million carers in the UK. The lives of carers are already extremely hard. A Carers UK survey of 4,500 unpaid carers, mostly caring for 50 or more hours a week, shows that almost half of them, some 41%, are cutting back on essentials such as food and heating—one wonders what else they could cut back—while 45% said that financial worries are affecting their health. I want to draw to noble Lords’ attention the fact that Clause 7 breaches a Government election manifesto commitment to increase support for full-time unpaid carers. The cuts set out in Clause 7 and elsewhere in the Bill come on top of previous changes which Carers UK estimates will result in a cut to carers’ incomes of more than £1 billion between 2011 and 2018. I would be grateful if the Minister responded to this point.

The Government’s impact assessment identifies that 6% of carer’s allowance recipients will be subject to the cap. Those who have had their benefits capped at £26,000 will lose an average of a further £64 per week. The figure of 6% may seem small, but for every one of those families it will be devastating. The cumulative impact of the cuts, together with the cut to WRAG benefits and further reductions in local government funding, will inevitably undermine the capacity of many carers to continue their invaluable caring work. I know that carers looking after disabled partners and disabled children aged under 18 are exempt from the cap, but why are those who care for adult disabled children, siblings or elderly relatives not also exempt? I would be grateful if the Minister explained this. Why should one group of carers be given preference over another group? Surely that is an anomaly.

The Minister will be aware that on 26 November 2015 the High Court ruled that carers in receipt of carer’s allowance should be exempt from the benefit cap following a judicial review challenge to the policy and its impact on carers and the disabled, seriously ill or older loved ones they support. The judge’s comments will be known to the Minister, but I want to quote one short passage in which he concluded that, “With carers being unable to mitigate the cap, this endangers the sustainability of the caring role and indirectly discriminates against the disabled person, who will no longer be able to receive care”. What do the Government plan to do in response to this ruling? I hope the Minister will clarify the position for noble Lords.

Recent DWP research shows that households containing carer’s allowance claimants subjected to the cap are more likely to move into work than those

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not capped. To what extent has the cap already led claimants to abandon their caring responsibilities in order to return to work? How many disabled people have moved into residential accommodation as a result? The implications for social care services and costs to the public purse may be considerable. Does the Minister have information on this point? In fact, will the cap save money as far as it affects carers, or will it cost the Exchequer a great deal?

I will say a brief word about the amendments aimed at excluding disabled people’s benefits from the calculation of the cap for any household. We have already discussed the severe consequences of this Bill for disabled people, particularly if all the cuts go through unmodified. I want to say in the context of Clause 7 only that disability benefits were introduced to compensate disabled people for the additional expenditure they incur because of their disability. If these benefits are included in calculating the cap, families with a disabled member will be poorer than able-bodied families. They do not benefit in material terms from their disability benefits, because all those benefits do is compensate for the higher costs of travel, heating and so on than able-bodied families incur. Is it the Government’s intention to hit disabled people particularly hard with this legislation? If they wish to treat disabled people on an equal basis with others, disability benefits should indeed be excluded from the cap calculations. I would welcome the Minister’s comments on this point. I beg to move.

Baroness Pitkeathley: My Lords, I rise to strongly support the amendment moved by the noble Baroness, Lady Meacher. We have said already that the cap is applied unequally to carers. While I welcome the exemption for households in receipt of PIP or DLA, it means that carers who are considered to be not in the same household as the person they care for will be penalised.

Lord Freud: In the interests of saving time, it may be worth me saying one of the key things that I will say as I close. Clearly, noble Lords will be aware of the High Court judgment in the case of Hurley and others. The Government are considering this closely. Can I ask noble Lords to allow me to come back to them on this important issue at a later date? By that I am hopeful that it will be on Report. I am hopeful but I cannot guarantee it—well, it must be at Report stage. I will come back with the Government’s decision on that, which might help to truncate some of our deliberations. That is all I can say at this stage.

Baroness Pitkeathley: I am grateful to the Minister and will happily truncate and wait with bated breath for his response on Report. Meanwhile I simply support the amendments of the noble Baroness, Lady Meacher.

The Earl of Listowel: I rise to speak to my Amendment 90B which would exempt kinship carers from the benefit cap. I am most grateful to the noble Baroness, Lady Drake, for adding her name to the amendment.

I will be brief as the Committee has already discussed kinship care and the Minister has knowledge of it through his charitable work. One does not need to

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believe in an afterlife to know that there is a hell. One need only hear some care-experienced adults speak of their experience. The experience of too many is: to grow up without love; to be betrayed by those they trust; to be left in that position for years before the state intervenes; to experience rootlessness in care often; to look to alcohol or drugs for respite from guilt and the inability to relate to others; and to give birth to child after child only to have each baby removed by the state.

Our amendment increases the chance that these souls will know heaven rather than hell, and increases the chance that they may know love and security and then go on to love and be loved themselves. The best rehabilitation we can offer children taken for their protection from their parents who cannot love them is the chance that these children can find love themselves and go on to be adults who will start healthy families and have children they can love and who love them.

We know that 30% of kinship carers on housing benefit and 36% of the larger of these families are on HB. There is a concentration of kinship care in London, with 1.7% of children in this city cared for under kinship care arrangements. Brent has 2.8% of its children in kinship care—the highest level in England. Failure to amend this Bill will put more of these families into poverty and, I fear, uproot others.

What kind of choice is it that the state is forcing families to make when in order that an aunt or uncle should do right by their niece and/or nephew, they must uproot their own children from their home, friends and school, leaving behind their own support network, to live in poverty somewhere they may not know. A grandmother carer said of the Bill as it stands, “I had a really well-paid job and now I worry constantly about money. I always listen to what the Government are doing as the changes with universal credit will affect me and my little one. I am scared of losing my home and being homeless”. I beg the Minister to accept our amendment and ensure that this Bill makes the welfare of these particular children paramount.

Baroness Lister of Burtersett: I shall be very brief. I support what the noble Earl, Lord Listowel, said about kinship carers. I am delighted that the Minister will come back before Report on the question of carers. I remind him of something he said during the passage of the 2012 Act. He said that one thing the Government were not looking to encourage was a change in the carer’s behaviour so that they stopped caring.

I hope that he will remember that statement—and what he has heard about how strongly Members of this House feel about the inappropriateness or “indecency”, as my noble friend put it, of applying the cap to carers—when he makes these considerations about how to respond to the High Court case.

Baroness Pitkeathley: Perhaps I might just add to that. I ask the Minister to bear in mind that we have already heard that many carers are working more than 50 hours a week. That is more than any full-time job and we need to keep that in mind when we consider pushing carers into work.

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6.15 pm

Lord Blencathra: I rise briefly to oppose the noble Baroness, Lady Meacher, because her amendment would remove the ESA part in Clause 7(4)(e). I do not think that removing it will serve people with disabilities well. To be fair, when the Labour Government introduced the ESA back in 2008, they had a noble aim: to help support many people with disabilities into work. I commend them on that. The work-related activity group—WRAG—within ESA was originally intended to act as an incentive to encourage people to participate in work-related activity and therefore return to work quicker.

Previously in Committee, noble Lords suggested that people in the WRAG have been declared not fit for work, but that is not the case. They have been declared to have “limited capacity for work”, which is not the same thing, as most noble Lords will understand. That is an important distinction, for the purpose of this group is to encourage people into work. Indeed, when the Labour Government introduced the benefit White Paper, Raising Expectations and Increasing Support: Reforming Welfare for the Future, published in 2008, they stated that they aimed to reduce the number of people on incapacity benefits by 1 million by 2015. I am making no criticism or political comment. It was a wise and noble aim, yet the reality is that we have failed and only 1% of people in the WRAG leave the benefits system each month.

It is good that the Department for Work and Pensions is currently looking to reform this area and I look forward to seeing my noble friend’s White Paper in the new year. It would be a backward step to remove the ESA. We have already discussed this, and my noble friend has already stated today the tremendous success that the cap has in getting people into work. Removing the ESA would be slightly counterproductive.

Baroness Meacher: Very quickly, I just want to raise the question of whether the noble Lord, Lord Blencathra, thinks that there is a problem with the work capability assessment or with the ESA WRAG. I am aware that people with Parkinson’s are already assessed as having limited capacity for work. The idea that their capacity will grow is frankly inconceivable.

Lord Blencathra: The noble Baroness makes an interesting point. We addressed the capacity for work test at an earlier stage. There are concerns and it may not be perfect. It is very difficult to assess. We can have 100,000 people with MS and every single one is different, so it is very difficult to come to a firm conclusion. I know that the Government are continually improving it. Labour improved it. The coalition improved it and the current Government are trying to improve that test. I hope that my noble friend will continue with that.

Baroness Sherlock: My Lords, I rise to speak to Amendments 87 to 90 in our name, and to comment briefly on the other amendments in the group. Ours are probing amendments designed to encourage the Minister to talk to the Committee a bit more openly than he has been able to do so far. What behavioural responses are being sought from some of the groups of people affected by the cap?

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I thank the noble Earl, Lord Listowel, for talking about kinship carers so powerfully. I shall be listening very carefully to what the Minister says at the end, and I hope to hear him engage rather more substantially with the issue than I feel he did when this came up in earlier stages, particularly in relation to the two-child policy.

Amendment 87 would exclude from the cap anyone claiming carer’s allowance. I am very happy to press pause on that and come back to it on Report. The Minister should be aware that expectations are now running exceedingly high in this House. I am sure that what he has to say when he comes back will be a delight to all of us, and I very much look forward that.

There are two things from the judgment that he might still take, even if the Government decide to accede to the very small number of people who were there. The first goes to a point made by the right reverend Prelate the Bishop of Durham. At the opening part of the judgment Mr Justice Collins said that,

“to describe a household where care was being provided for at least 35 hours a week as ‘workless’ was somewhat offensive”.

That was a very good point and one we could all do well to remember.

The other point that Mr Justice Collins made, which is of wider relevance, was that what often seemed small capped sums for the DWP could be such a loss to these families as to “tip them into destitution”. One of the cases he gave as an example was of somebody who was losing £11 a week. These may seem small sums to the department but they can make the difference in Dickensian terms between happiness and misery to individual families. I hope that we will all bear that in mind.

Amendment 88 would exempt from the cap those who are claiming universal credit and are not subject to all work-related requirements. Amendment 89 would exempt people in receipt of ESA in the WRAG group, which was just addressed by the noble Lord, Lord Blencathra. Amendment 90 would exempt claimants of income support. In the impact assessment, the Government talk about reducing the levels of the cap for those not making a “behavioural response” by an average of £63 a week. That is a lot of money.

These amendments require the Government to explain what behavioural responses are being sought. The Minister says that this is hugely successful in getting people into work. In fact, as we have already heard from the IFS, the majority of people affected are not responding by either moving house or moving into work because 85% of them are not required to work as a condition of receiving benefits. Therefore, the cap will try to push into work certain people who would otherwise not be required to do so because they are on ESA, or they are the parents of very young children, or they are carers—a point made very strongly by my noble friend Lady Hollis on an earlier amendment.

The only ways to escape the cap are to move into work of at least 16 hours a week—to open a working tax credit claim, or be on the minimum wage while on UC—or move home. In the case of people on ESA—the point made by the noble Lord, Lord Blencathra, notwithstanding—does the Minister accept that some people in the ESA WRAG group will either not be capable of working at the moment, or will not be able

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to sustain 16 hours’ work a week, or will not be able to work consistently because of the nature or their illness or disability? If that is the case, can he explain to the Committee what behavioural responses he wants from them and, if they are not capable of making any of the available responses—working or moving house—does he think it fair that they should simply have their income cut because they are incapable of doing the thing he wants them to do?

In the case of parents who are capped, the normal work requirements do not apply, so a single parent or main carer could have two children, including a very young baby, and be expected to work if the cap means that they could not otherwise afford to pay their rent. Whenever we talk about single parents or parents working, the Minister tells the House that the Government are putting lots of extra money into childcare and that parents of three and four year-olds will have extra childcare, as will disadvantaged parents of two year-olds, but here we are talking about children who could be one or two years old. There is no free entitlement to childcare when a child is under two. Even the provision of childcare for disadvantaged two year-olds is for only 15 hours in term time, which would not match the requirements of someone moving into a job for 16 hours a week throughout the year to escape the benefit cap.

Research undertaken by the Family and Childcare Trust found significant gaps in provision for young children in 136 local authorities surveyed in England and Wales. The evidence bears this out. It shows that single parents with younger children are already less likely to move off the cap than other groups, presumably because they are struggling to find suitable flexible jobs and suitable childcare while combining them with minding very young children.

The impact assessment also talks about the aim being to improve work incentives, but I wonder whether the Minister has read the report from the Child Poverty Action Group, which showed just how strong work incentives were, even for families who might be getting significant amounts of benefit. It gives the example of a very rare occurrence of a lone parent with four children, who would be better off by £105 a week working just 16 hours a week on the minimum wage. Therefore, work incentives already exist so, if parents are not working, something else may be going on.

When the Minister responds, I hope that he will address these probing amendments by talking about individual cases. He has talked a lot about how he wants to move to a much more personalised situation so that advisers can engage with individuals and understand that their circumstances differ, yet this measure feels like a very blunt tool, indeed. Therefore, could he tell us a little more about what it might mean in practice?

The Lord Bishop of Southwark: My Lords, I rise to express my support for the intention behind the amendment in the name of the noble Earl, Lord Listowel, which makes both sound social and economic sense. If a child can be cared for within the family network, and that is not to be parents or step-parents, that is in most cases preferable for the emotional, physical and spiritual well-being of the child. Churches have watched and participated for centuries in the

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patterns of such relationships and know that while they can hide dangers, they provide in the main the best setting for the formation of life. Better that than the anxiety, grief and hardship that the imposition of benefit rules not designed for such scenarios imposes, and that a proportion of such children be an economic charge on local authorities and reap the emotional deficit that will all too often occur.

We have heard that there are an estimated 200,000 children raised by kinship carers across the UK. Some 50% are grandparents and a little under a quarter are siblings bringing up younger brothers and sisters. If 95% of children living in kinship care arrangements are not looked after by the local authority, can we imagine what the cost would be if there were any sort of shift in that figure—yet we expect the carer to bear that cost? It is a cost often undertaken at short notice and in an emergency. Kinship carers face significant additional costs in terms of both equipment needed and maintenance costs. Their family size increases and can even double overnight. Unlike adopters, they are not entitled to a period of paid leave for the children to settle in. The largest survey of kinship carers in the UK, conducted by the Kinship Care Alliance, found that 49% of respondents had to give up work permanently as a result of taking on the kin children, a further 18% had to give up work temporarily, and 23% had to reduce their hours temporarily or permanently. In many cases, this plunged the household into poverty and debt. One grandmother carer responding to the survey said:

“We are struggling to buy food and pay our bills. We have to get food vouchers every three months”.

The Kinship Care Alliance survey found that 30% of kinship carers’ households were currently receiving housing benefit. The figure rose to 36% among larger kinship care households with three or more children—kinship care households such as that headed by Rachel, a grandmother in her 50s who lives near my diocese in south London. She took on the care of her three young grandchildren when her daughter died in a car accident last year. The children’s father is in prison. She has had to give up work to raise the oldest grandson, who is six years old and her two youngest granddaughters, who are three and one years old. She is also grieving the loss of her daughter, just as the children are grieving the loss of their mother.

I would be grateful to the Minister if he could tell me whether the Department for Work and Pensions has undertaken an assessment of the likely impact of this measure on kinship care households and, if so, whether he could provide the detailed figures. Furthermore, if the Government do not favour this amendment, will they bring forward their own amendment to address the points I have raised? Is the Minister not concerned—as I am—that the numbers in care may rise if action is not taken?

Many of the children arrive to live with kinship carers following a crisis and are deeply traumatised. Many have severe needs and some have suffered prior abuse. The survey to which I have referred found that kinship carers reported that a staggering 43% of the children had emotional and behavioural problems. Forcing carers into work cannot always be a just and appropriate response.

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The right reverend Prelate the Bishop of Portsmouth, who spoke earlier in these debates, dearly wished that he could have spoken today, and I pay tribute to his endeavours in this regard. I welcome the focus of the Government’s own family test on stable and strong family relationships and the explicit reference to kinship carers in the test. This amendment is entirely consistent with the application of the family test and I hope that the Minister will accept it.

Baroness Drake (Lab): My Lords, I too support Amendment 90B, which seeks to exclude kinship carers from the benefit cap. The amendment is, indeed, a logical extension of our discussion on the first day of Committee on kinship carers and their exemption from the two-child limit. To reiterate, care proceedings cost an average of £25,000 and foster care £40,000 a year, yet most kinship care arrangements can be fixed without recourse to the courts, with dramatic savings to the public purse as well as significantly improving outcomes for the children. However, much of the financial cost of raising the child typically falls directly on the carers themselves.

When we discussed this issue on 7 December, I found the Minister’s response on kinship care profoundly worrying. He was pressed on his failure to acknowledge that a family taking in other people’s children is not doing so through some concept of voluntary freedom of choice, as normally understood, but is choosing to take on the responsibility of vulnerable children rather than abandon them. The Minister responded:

“Clearly there is a difference between the voluntary and involuntary taking on of children, whether they are your own or anyone else’s. That is what our exemptions are for. We are seeking to try to draw the line between where it is involuntary, as in the case of rape, and where it is not”.—[Official Report, 7/12/15; col. 1332.]

That statement shocked many in this House because in effect the Minister was saying that if a kinship carer takes on responsibility for vulnerable and distressed children, that decision is voluntary and therefore not worthy of state support if it means that there are more than two children in the household. I find that reasoning quite extraordinary and, indeed, quite dreadful.

6.30 pm

I have two questions for the Minister on this issue. First, does he accept that taking in vulnerable children because their parents have died or are unable to take care of them is not what most people would call a voluntary choice? Secondly, he reminded us on the first day of Committee that the Government had agreed during the passage of the Welfare Reform Act 2012 to make a distinction in the treatment of kinship carers in relation to conditionality for those claiming universal credit, so that, as he put it,

“kinship carers will have to attend periodic interviews only for the first year after a child joins their household, which enables the carer to focus on helping the child through this difficult period”.—[

Official Report

, 7/12/15; col. 1329.]

Given that, can he explain why kinship carers who find themselves subject to the benefit cap and could escape it only by working 16 hours a week should not now focus on helping the child through this difficult period?

The reasons for exempting kinship carers from the benefit cap are persuasive and have already been put

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in some detail so I will not risk too much repetition. The vast majority of them have to either give up work permanently or temporarily or reduce their hours to look after what is often a traumatised child, and at the requirement of the social worker, while indeed meeting both equipment and maintenance costs. Some 76% of kinship carers are in deprived households in receipt of housing benefit so the lower benefit cap is likely to particularly affect families in London, which has one of the highest rates of kinship care of children, in view of the very high housing costs, as the noble Earl, Lord Listowel, identified. I ask the Minister: how many kinship carers do the Government estimate will be affected by the benefit cap in London and outside it?

My noble friend Lady Sherlock reminded us again of the very confusing reference in the impact assessment to the “behavioural response” that is being sought by the benefit cap and the average reduction of £63 a week for people who do not make the appropriate behavioural response. In effect, this is a punishment of kinship carers for taking on the responsibility of vulnerable children, because they have not made the correct behavioural response. Presumably, under the logic of the way in which the benefit cap is operating, taking on the care of the child is not an appropriate behavioural response.

The reduced benefits resulting from the lower benefit cap could jeopardise existing kinship care arrangements, deter potential kinship carers and work against the child’s best interests—and, indeed, increase the cost to the Government if more children go into the care system rather than stay with kinship carers. But the impact assessment provides little or no assessment of these effects or the deterrent effect on kinship carers. State expenditure simply trumps the interests of these children and their kinship families, even though that reduction in state expenditure would not be delivered at all—let alone the interests of the child protected—if more children went into the care system because of the deterrent effect on kinship carers. The case for exempting kinship carers from the benefit cap is quite compelling.

Lord Freud: My Lords, Amendments 75, 78, 80, 81 and 83 seek to exempt specified benefits from the list of those that are included within the cap or to exclude those benefits in the same way that pensioner benefits are. These amendments undermine the fundamental principle we established when we introduced the cap: there has to be a clear limit to the amount of benefits that an out-of-work family can receive. This is a principle that has gained very broad support across the country.

Turning to the specific proposals, after my intervention on the noble Baroness, Lady Pitkeathley, on the carer’s allowance, I re-emphasise that the Government recognise the valuable contribution that carers make, and I will come back to that issue. Amendment 78 also exempts all those claiming employment and support allowance. Those in the support group are already exempt. But the benefit cap is a work incentive. Those in the WRAG have been assessed as being able to undertake some work-related activity, with a view to moving into employment in the short to medium term, and therefore we believe it is right that the cap be applied to these people.

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The same principle applies to those in receipt of IB and SDA together. The recipients of these benefits will not necessarily be unable to undertake any work-related activity, but we are reassessing them for ESA and those who are found to be entitled to the support component will become exempt from the cap. Income support is a benefit paid to claimants in an extremely wide range of circumstances. It is an income-replacement benefit and as such, it is appropriate that, like the other income-replacement benefits, it is included in the cap.

The cap increases work incentives and promotes fairness by limiting the amount that those out of work can receive in benefits. I do not think that a blanket exemption from the cap for simply everybody in receipt of income support would support either of those aims. The vast majority of capped households that have found work include parents who have managed to balance their caring responsibilities with work—as millions of working households already do up and down the country. By going out to work, parents show their children the importance of a strong work ethic and reinforce the message that work is the best route out of poverty.

Before turning to Amendments 87 to 90B, I remind noble Lords of the exemption from the cap for anyone who is a member of a household that includes somebody who is ill or disabled and is entitled to attendance allowance, DLA, PIP, industrial injuries benefits or the armed forces independence payment. Additionally, as well as war widows and widowers, those who are entitled to the support component of ESA or universal credit’s limited capability for work or work-related activity element are exempt.

In recognition of the work incentive objective of the cap, households that are entitled to working tax credit or meet the prescribed earnings threshold for universal credit are also exempt from the cap. I have already mentioned the nine-month grace period from the cap for households that have recently left sustained employment. We have committed £800 million, as I have already said, for discretionary housing payments over the next five years to provide extra support for households that may be affected by the cap, within the context of that £800 million being for all the welfare reforms. I hope that noble Lords are assured that, combined with the additional funds that we have allocated for DHPs, there are already numerous safeguards in the design of the cap which protect the most vulnerable, as well as those with a strong work history.

I have already said that I will come back on Amendment 87. Amendment 88 would exempt from the cap all those in receipt of universal credit who are not subject to all work-related requirements. There is already an exemption, as I have said, for those who have limited capability for work or work-related activity. But this amendment would extend the exemption far more widely, including to those subject to work-focused interviews and work preparation requirements, many of whom will have a relationship with their work coach focusing on what they can do to prepare positively for a return to work.

Amendment 89 also seeks to exempts all those on ESA. I will not repeat the particular arguments but will add that there is a large body of evidence showing

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that work is generally good for physical and mental well-being and that where their health condition permits, sick and disabled people should be encouraged and supported to remain in or re-enter work as soon as possible. I am encouraged that the noble Lord, Lord McKenzie, was happy to acknowledge that point a couple of weeks ago.

Amendment 90 would also introduce an exemption for all those in receipt of income support. Again, that is an extremely wide range of circumstances.

Baroness Hollis of Heigham: I accept the point about income support covering a wide category of claimants, and I know that we will come on to this later, but is the noble Lord willing to reconsider his position on attaching a benefit cap to people from whom work is not expected by virtue of, say, the age of their child?

Lord Freud: I have already answered that question in the first of these amendment groupings. I repeat: there is a difference between having a state expectation—and conditionality attached—for people to go to work, and a financial incentive for them to do so.

The noble Baroness, Lady Sherlock, asked whether responsible carers would be set requirements that they cannot meet. We will ensure that any work-related requirements will be tailored to individual circumstances and compatible with childcare responsibilities.

I turn to the amendment tabled by the noble Earl, Lord Listowel, on kinship carers. The Government recognise the service that kinship carers and others provide, and the Bill continues the current provisions for foster carers, kinship carers, and family and friend carers. If they, or a child for whom they are caring, are in receipt of an exempt benefit the cap will not apply. In addition, any payments received from the local authority for providing care will be disregarded from the benefit cap. Finally, there is a nine-month grace period whereby the cap may not be applied to those who have recently left sustained employment. This will give time for kinship carers who may have had to leave employment to take on additional caring responsibilities to adapt to their new circumstances. Family and friend carers are treated in the same way as parents in the benefit system, so it is only fair to ensure that this principle applies to the application of the cap, too. The benefit cap is intended to promote fairness between those in and out of work, and to increase incentives for people to move into work—principles that I believe apply in the same way for family and friends carers as for parents.

Regrettably, I am not in a position to supply the specific data requested by the noble Baroness, Lady Drake, on what is happening in London. As I said, I will come back to the matter of carers at a later date but I cannot support the other amendments and I ask noble Lords to withdraw or not press them.

Baroness Meacher: My Lords, I thank all noble Lords who have spoken very powerfully in support of these incredibly reasonable amendments. My understanding is that what we are all about is seeking that the cap does not apply where it is completely inappropriate and unfair to expect that person to

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work. In the case of kinship carers as well as other carers, the impact on the disabled child or relatives is likely to be extremely serious. The impact on the Exchequer or the taxpayer is also likely to be extremely costly.

I thank the Minister for informing the House that Ministers will be returning to the issue of carers, but surely the arguments of the High Court and the judge in relation to carers in general apply equally to kinship carers. I cannot see any possible argument that they do not—they just have to—so I ask the Minister to take away that point and consider the relevance of the High Court judgment and comments on kinship carers, and the need for some consistency. I also ask him to think further about the importance of people who cannot work for whatever reason, whether they have a one year-old child or are disabled to such an extent that they simply will not get better. Those people should be exempt from the cap and I ask the Minister not just to put that issue away and think “Job done”, but to think seriously and say, “Now hang on—surely we should be doing something about this”.

6.45 pm

The Minister said to me when we met to discuss this issue that the trouble is that, if he makes concessions on A, he will have to take some money from B. There is an opportunity to save billions if only the Government would invest in housing on the green belt—green areas within the M25 and areas around other urban conurbations. If the rents and costs of properties were controlled in that way, the housing benefit bill would really drop. Billions could be saved in that way without affecting very poor people. When the Government say that this is “just one of those things” and that it is necessary, I am sorry but I do not accept that. I ask the Minister to convey that point to his ministerial and other colleagues in the housing department, and on that basis I am happy to withdraw the amendment.

Amendment 75 withdrawn.

Amendment 76

Moved by Baroness Sherlock

76: Clause 7, page 9, leave out lines 3 and 4

Baroness Sherlock: My Lords, I shall also speak to Amendments 77, 79, 82, 84 and 85, which are in my name and that of my noble friend Lord McKenzie of Luton. These amendments would exclude a series of benefits from the cap which relate to families with children, and I want to say a brief word about each of them. Once again, we have tabled these as probing amendments and I therefore encourage the Minister not simply to say yes or even no. If he said yes, I would obviously fall over in shock. I am trying to use these amendments as a vehicle to get him to explain more carefully to the House what he expects people affected by the cap to do to avoid it. That is all I am asking for here, so I encourage him to respond in that vein.

Amendment 76 would exclude child benefit from the cap and Amendment 77 would exclude child tax credit. Just to be clear, the Minister mentioned in the last group that he feels that all income replacement benefits should be included. Those are specifically not

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income replacement benefits but extra-cost benefits. Child benefit has traditionally been a universal benefit—it is still available to all but the highest-tax bracket households—and it is designed to be the classic extra-cost benefit. It is a horizontal transfer from taxpayers as a whole to households with children, out of a recognition that children are a public as well as a private good and therefore we should all share in the costs of raising them. The parents pay the lion’s share but we all make a contribution because it is in all our interests to raise children who are happy and healthy, and who will be the next generation paying for the rest of us. Why are they therefore excluded?

Amendment 79 would exclude guardian’s allowance from the cap. You can claim guardian’s allowance only if you are caring for somebody else’s children because their parents have died, or because one has died and the other cannot look after them because, for example, they have gone missing or are in prison. What behavioural incentives are the Government seeking by including guardian’s allowance in the cap?

Amendment 82 would exclude maternity allowance from the cap. Maternity allowance is available only to those who are in work but cannot get statutory maternity pay. It enables the woman to take paid maternity leave. The Minister may mention the grace period but that applies only to people who have been in work for the last year at the point when they make an application for benefit, and that may not apply to everybody in this circumstance. Suppose that a woman finds that she hits the cap because her household benefits rise as a result of her maternity allowance. What is she to do? Let us say that she is single or that her partner is unable to work. What behavioural response does the Minister want? The two things that have traditionally been suggested are to work or to move house. Is she to work when she has a job but is going on maternity leave? Is she to move house when she is about to give birth? Neither of these seems an obvious response, although I may have missed something, and I very much hope that I have. I raised this at Second Reading or some other point during discussions on the Welfare Reform Bill in 2012, because I remember at the time I could not really believe that the Government genuinely meant to include a maternity benefit in the cap, when the way you got out of it was by working. However, I very much hope I have missed something and look forward to the Minister explaining that one.

Finally, Amendments 84 and 85 would exclude from the cap widowed mother’s allowance and widowed parent’s allowance, which are paid only to widows below state pension age who have dependent children. Those are contributory benefits, eligibility for which depends on the contribution record of the late spouse. I would be interested to hear the Minister’s reasons for including those benefits in the cap.

The impact of this on children will be quite significant. To date, more than twice as many children have been hit by the cap as adults. Children are disproportionately affected by the benefit cap, and 63% of households capped to date contain a child under five. Reducing the cap means that some families simply will not have enough income to manage. Even if they manage some weeks, there will come a time when their budgeting gets thrown off course; for example, when a winter

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heating bill comes in, both kids have a growth spurt, a child moves to secondary school and needs a new uniform, or the fridge breaks down. With access to hardship payments much reduced, and unable to repay loans or catalogue payments, parents will build up debts and miss rent payments simply to feed the kids and buy essential items. If the Government are going to cut benefits to families with children unless their parents take certain specified actions, the very least they can do is explain to us what those actions are and what they expect them to do about it.

Baroness Lister of Burtersett: My Lords, I rise to speak in support of Amendments 76 and 77, to which I have added my name. I apologise that we will be going over some of the issues raised in the first group of amendments, particularly by my noble friend Lady Hollis, but they are crucial because they go to the nub of some of the disputes among us as to what is fair and what is not.

The amendments follow on from my Amendment 93, discussed earlier, which was designed to safeguard and promote the welfare of children. In speaking to that amendment, I referred to Lord Carnwath’s judgment in the recent Supreme Court case on the cap, in which he made the point that the inclusion of child benefit and child tax credits in the cap raises,

“questions why the viability of a scheme, whose avowed purpose is directed at the parents not their children, is so disproportionately dependent on child related benefits”.

He also said:

“The cap has the effect that for the first time some children will lose these benefits, for reasons which have nothing to do with their own needs, but are related solely to the circumstances of their parents”.

This takes us to one of the “policy objectives” or “intended effects” listed in the impact assessment, namely to:

“Promote even greater fairness between those on out of work benefits and tax payers in employment (who largely support the current benefit cap), whist providing support to the most vulnerable”.

The “most vulnerable” are not defined, but in the impact assessment on the benefits freeze, the term is qualified with the phrase,

“who are least able to increase their incomes through work”.

Surely children fall into that category. Yet the justification for the way the cap is constructed and for the reduction in its level ignores this and, as Lord Carnwath observed, takes no account of children’s needs, relating instead solely to the circumstances of their parents. Moreover, it is worth repeating the observation of the noble and learned Baroness, Lady Hale:

“The children affected suffer from a situation which is none of their making and which they themselves can do nothing about”.

My noble friend Lady Hollis made the point that it is not a level playing field here—a horrible sporting metaphor—and that we are not comparing like with like when we compare in-work earnings with out-of-work incomes, although I will not go into more detail on that. I tried to find out by way of a Written Question how much the so-called hard-working families we hear so much about were likely to be receiving in benefits. This time the response I received rehashed the latest government mantra of their commitment to,

“a higher wage, lower tax, lower welfare economy”,

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and referred me to the HM Revenue & Customs website. I enlisted the help of the Library to see whether it could elicit the answer from the website, but—surprise, surprise—it could not. In effect, a government Minister—in this case, the noble Lord, Lord O’Neill of Gatley—was encouraging me to waste my time by sending me to a website that would not supply me with the answer to the questions I was posing. Given that the Government were able to supply similar figures in answer to a Written Question during the passage of the Welfare Reform Bill in 2012, it is surely possible, and beneath the disproportionate cost threshold, to do so again now. I fear that, increasingly, government departments simply cannot be bothered to answer our completely legitimate questions, thereby ignoring their responsibility for parliamentary accountability.

Similarly, I tabled a Question to find out what the impact would be in terms of the total number of households capped, the number of children affected and the cost to the public purse, if children benefit and child tax credit were excluded from the cap. Once more, I was referred by the Minister to the impact assessment, as if that contained the answer. Yet again, such information was made available during the passage of the Bill in 2012, showing that nearly half the savings from the cap were being made as a result of the inclusion of children’s benefits: in other words, nearly half the savings were being made on the basis of a blatant piece of unfairness that drives a coach and horses through the Government’s claim to be creating that beloved level playing field between families in and out of paid work, giving rise to Lord Carnwath’s query about why the policy’s viability is so disproportionately dependent on child-related benefits when its avowed purpose is directed at the parents not the children. It is clear from the evaluation of the existing cap that one consequence is likely to be even greater arrears and debt, thereby aggravating what the Government themselves consider to be a root cause of child poverty.

On our first day, there was broad agreement among noble Lords who spoke that the two-child policy does not meet the Government’s own family test. Although it might not be quite so blatant here, I believe the same applies to the inclusion of children’s benefits in the children’s cap. Although the impact assessment for the cap is much more thorough than that for the two-child policy, I could not see any reference to the family test having been applied. Could the Minister confirm that it was applied and could he undertake to publish the documentation?

When we last discussed this issue, during the passage of what became the 2012 Act, as we have already heard, there was strong support in your Lordships’ House, under the leadership of the right reverend Prelate the Bishop of Ripon and Leeds, for excluding children’s benefits from the cap. I very much hope that that support will be there again now, because with a reduction in the level of the cap to an arbitrary two-tiered level below median earnings, the case for exclusion is stronger than ever.

Lord Freud: My Lords, this group of amendments seeks to exclude specified benefits payable for children and widowed parents from the list of those included within the cap. As I mentioned in relation to the other

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amendments, these amendments would undermine the fundamental principle that was established when the benefit cap was introduced: that there has to be a clear limit to the amount of benefits that a family can receive. That is a principle that has gained very broad support across the country and indeed from the Opposition.

The benefit cap is one part of our suite of welfare reforms which are restoring work incentives and fairness to the benefits system. That previous system was not fair on working taxpayers; nor was it fair on claimants, trapped in a life where it was more worth while claiming benefits than working. Our welfare reforms are about moving from dependence to independence, and the benefit cap is helping people take that important step into work.

We have always accepted that there should be some exemptions from the benefit cap. To incentivise work, the cap does not apply to those households in receipt of working tax credit, which, for lone parents, requires 16 hours of work a week. To recognise the extra costs that disability can bring, households which include a member who is in receipt of AA, DLA, PIP or Armed Forces independence payment are exempt. Those who have limited capability for work and are in receipt of the support component of ESA or the equivalent in universal credit are exempt. War widows and widowers are also exempt.

7 pm

As I have already mentioned, to further emphasise the work incentive and fairness principles of the cap, we have also provided for a nine-month grace period for those who have recently left sustained employment. I am very grateful to the noble Lord, Lord Best, who is not in his place, for the idea.

We must not forget that our welfare reforms are about transforming life chances as well as promoting fairness for those families who are in work. I cannot see why we would want to exclude all specified benefits payable for children and widowed parents from the cap, as would be the result if the amendments were passed. Like other welfare benefits, child-related benefits are provided by and funded by the state. It is therefore right that they are taken into account along with the other state benefits when applying the cap. Those cap levels are not insignificant, being equivalent to annual pre-tax incomes of £25,000 and £29,000. Removing these benefits from the cap would effectively mean there would be no upper limit on the amount of benefits that out-of-work households could receive.

The noble Baroness, Lady Sherlock, asked what I expected people to do to avoid the cap. Millions of households are balancing their caring responsibilities with work, and since the cap was introduced in April 2013, nearly 9,400 capped lone parents have moved into work and claimed working tax credits, joining the 1.25 million lone parents in employment in the UK. By going out to work, parents show their children the importance of a strong work ethic and reinforce the message that work is the best route out of poverty, while improving their longer-term life chances.

The Government have a strong record on providing support for children; parents receive support to help with the costs of childcare, which is being extended

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further to help working parents. To support those with younger families, the childcare offer is increasing to provide 30 hours of free childcare per week.

Two of the benefits that noble Lords are seeking to exclude from the cap are the widowed mother’s allowance and the widowed parent’s allowance. I acknowledge the important part that these benefits play in supporting widows and widowers in the months following bereavement. The death of a spouse or civil partner is a life-changing event, emotionally, socially and economically, and there is an important role for the Government to play in providing some relief from the financial pressures in the short term to support people while they adjust. However, the Government should, at the right time, encourage claimants receiving bereavement benefits, who are without employment, into a supported return to work. Noble Lords will recall that, following a public consultation in 2012, we will be replacing the current suite of bereavement benefits in April 2017 with a new bereavement support payment which will focus on the financial support in the period immediately after bereavement by paying an initial lump sum, followed by 12 monthly instalments.

The noble Baroness, Lady Sherlock, asked why maternity allowance was to be included. Recipients of maternity allowance and guardian’s allowance will be affected by the benefit cap only if they are in receipt of a significant amount of other welfare payments. If the claimant or their partner has worked for 50 out of the 52 weeks prior to becoming unemployed, the household will be awarded a 39-week grace period before the cap will be applied. Clearly, we have the discretionary housing payment system to support those in the short term while they adjust.

I urge the noble Baroness to withdraw the amendment.

Baroness Lister of Burtersett: I am very sorry to intervene. I may have missed it, but I do not think that the Minister addressed my argument, also made by my noble friend Lady Hollis, about the fact that the comparator families in work will be receiving child benefit and almost certainly child tax credit, so why are they being included in the cap as we are not comparing like with like? I also asked a specific question about the application of the family test, to which the noble Lord did not give an answer.

Lord Freud: We did apply the family test; I had better write to the noble Baroness with the details because I cannot recall what was in it. There was quite a lot of material going through in a short time.

I think that I have now dealt twice with the fact that we are looking at earnings and we are not making that comparison, even though I know that neither the noble Baroness, Lady Lister, nor the noble Baroness, Lady Hollis, like the answer. That is my answer—I do not have another answer, however much I am asked.

Baroness Hollis of Heigham: Forgive me, my Lords, but an assertion is not an explanation. What we are getting is an assertion from the Minister: “I am not going to compare income and income, just income with earnings, and additional income for that person on earnings which comes from benefit will not be taken into account. Why? Because I say so”.

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The Government are running two arguments, over and beyond the repeated headline stuff. One is about work incentives—people are expected to move into work by virtue of this Bill. The second is the question of fairness between those currently in work and those out of work on benefit. I understand why the Minister is making these arguments, but on neither does he have a case, nor has he made one. He has simply made assertions.

On excluding people, rightly, from the support group, the Minister is still not explaining, but merely asserting: a lone parent with a child of one or two may have the choice to work; the Government do not expect them to work; most people would not necessarily want them to work; none the less, the cap will apply. When it comes to carers, a pause button has been pressed.

On the Minister’s second argument, over and beyond the work incentive whereby he is comparing those in work and those out of work, he is disregarding a chunk of people’s in-work income, which is in addition to those earnings. Why? Because he says so. The incentive into work does not apply to some of the groups we have been discussing. On the fairness between in-work and out-of-work income, the Minister has not included part of the income which would establish a reasonable basis of comparison.

What does the Minister expect us to do? He is asserting things without giving us any evidence and not engaging in the argument. His two assertions—this is why he is doing what he is doing—are not substantiated by any evidence or argument that he has offered. I am sorry, but this will not do. It is not good enough. The Committee is owed more from the noble Lord than we are getting.

Lord Freud: I have done my best to lay out that this is based on equivalent pre-tax incomes of £25,000 and, in London, £29,000. The comparable earnings figure is roughly at the level of four in 10. But I cannot produce any more information or justification—I cannot give what I have not got. I am afraid that that is what I am able to provide today.

Baroness Hollis of Heigham: I do not want to be discourteous to the Minister. He is much respected in the House, and many of us engaged with him in a very satisfactory way on universal credit. He took suggestions away, he listened, he argued, he produced new evidence which made some opposition Members change their mind. We have every respect for the fact that, as a Minister, the noble Lord is genuinely evidence based—except on this. He has produced no evidence.

What puzzles me is that the Minister has not asked for the evidence to substantiate his two drivers about getting people into work and having fairness between in-work and out-of-work claimants. We know from experience that the noble Lord respects evidence and offers it to us. He has come to the Committee, after Second Reading and three Committee sittings, knowing that we will be looking for evidence to sustain his position—and if he has it, we will respect it—but he has not come forward with it; he has simply repeated assertions. Either the evidence is not there, in which case the assertions have no substance, or the evidence

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is there but is not being shared with us, which suggests a level of bad faith that I do not in any way attribute to the Minister. So where are we?

Lord Freud: I will try one last time. If noble Lords are dissatisfied, that is the reality.

We currently have a benefit cap in operation at a single rate of £26,000, and we are taking that down. That has mainly affected London. We are now spreading it out to affect just short of 100,000 people—90,000-odd on the impact assessment, although it is interesting that, in 2012, a smaller number were involved in practice than in our original impact assessment, so let us just see.

Our experience of running that benefit cap and the reaction to it were such that the Government decided that we could safely reduce the level and put it into two tiers, so that its impact is spread through the country more evenly. We have taken it down by 12.5%. It is the experience of running it live that has led the Government to think that we could move it to these levels and get the incentive effects that we are looking for to operate. I do not have any more information to provide for the noble Baroness—much though I know that she would like more. I apologise to the extent that she is disappointed.

Baroness Sherlock: My Lords, I thank the Minister for trying, if not succeeding, to answer the questions. He must appreciate that we had some very good discussions during the passage of the Welfare Reform Act, which brought in the cap in the first place. One reason that they were good was because a lot of evidence was around. He was asked some searching questions from Peers from all Benches, he engaged with the argument, we had some good debates and I would like to think that the system that we now have in universal credit is better than it would have been had it not been for them. In fact, I think he was kind enough to say so at the time.

One reason why I have always enjoyed participating in debates in this House in this area is precisely because we have been able not just to trade in political slogans but get into detail and understand how we might improve current policy—which is the whole purpose of this Chamber as a revising Chamber.

Lord Freud: I say only that I remember with some fondness—not entire fondness, because 17 Sittings in Committee is too much for anyone—that we had some very valuable dialogues then. One of the most important was about universal credit and led directly to the creation of universal support, which is becoming a valuable tool that we are developing. I remember equally vividly that the benefit cap area was one where at least equivalent frustration was expressed by noble Lords about what I was saying. I remember that very distinctly. There were some very punchy discussions. I will say no more than that, but it was not an area where we had the most sweetness and light on that Bill.

Baroness Sherlock: I thank the Minister for reminding me of that joyous period; I think of it often.

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The Minister mentioned that a lone parent could avoid the cap by going into work for 16 hours on working tax credit. He did not pick up the point that I made on the previous amendment, which was that, on universal credit, he always said that lone parents would be expected to work only if they could find a suitable job where they could get childcare. He has not responded to the fact that a lone parent with a baby would have to go to work. The offer of childcare for three and four year-olds does not apply to babies. The offer of childcare for disadvantaged two year-olds does not apply all year round. There is a real issue. Someone might find that the only response was to take jobs which either might not be available or for which they could not find suitable childcare.

I am sorry to say that I did not find the Minister’s response on maternity allowance persuasive at all. I think this is one of these oddities, and I think the Government just got it wrong and should have just put their hands up. These are generally probing amendments, but I think that that is just genuinely bizarre. The impact assessment says that, if people do the right thing and move into work, they will not be capped. How is it possible for a woman who is about to give birth to do the right thing and move into work? That just does not work. However, I fully accept that I am not getting any more than I have.

Finally, during Committee, my noble friend Lady Lister has given two or three examples of Written Questions that she has asked, the Answers to which have been, frankly, unsatisfactory. They have mostly referred her to another document or website in which the answer was not found—as she has established with the help of the Library. That is a very bad trend in which legitimate questions are being asked for information which would help to inform deliberations in Committee on a Bill, but the department, via its Minister, is not providing them. We will keep a close watch on this and, if it comes up again, we will raise it again on the Floor of this House.

In the mean time, I beg leave to withdraw the amendment.

Amendment 76 withdrawn.

Amendments 77 to 90B not moved.

Amendment 91 had been withdrawn from the Marshalled List.

Clause 7 agreed.

7.15 pm

Clause 8: Review of benefit cap

Amendments 92 to 94 not moved.

Clause 8 agreed.

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Clause 9: Freeze of certain social security benefits for four tax years

Amendment 95

Moved by Baroness Sherlock

95: Page 11, line 30, leave out from “to” to end of line 31 and insert “be reviewed annually by the Secretary of State having given regard to—

“(a) the rate of inflation, and

(b) the national economic situation.”

Baroness Sherlock: My Lords, a change of subject. I am pleased to say that these amendments are not about the benefit cap. Amendments 95 and 102 are in my name and that of my noble friend Lord McKenzie of Luton, and Amendment 100 is in our names and that of my noble friend Lady Lister.

Clauses 9 and 10 provide for the freezing of certain working-age benefits for a period of four years until 2019-20. This is estimated to save the Government £3.5 billion in 2019-20 when compared to an uprating by CPI. The benefits and tax credits included in the freeze are the main working-age components of income support, jobseeker’s allowance, ESA, housing benefit and ESA WRAG, together with the key elements of working tax credit and the individual element of child tax credit, universal credit and child benefit. It does not extend to disability premiums, allowances for caring responsibilities or pension benefits.

Amendment 95 would displace the automatic freezing of those items and require a review to take into account inflation and the national economic situation. Amendment 100 would have the same effect for child benefit, and Amendment 102 for the otherwise frozen elements of universal credit.

Clearly, even if they were accepted, such amendments would not preclude the various rates remaining unchanged, but they would require some consideration of their real value and the capacity for the economy to share more fully the benefits of growth. It would give the Government the opportunity to think again in the light of changing—the Government would doubtless argue, improving—economic circumstances.

A bit of a pattern has been developing here. Previously, the retail prices index was used for uprating. Then Ministers robustly argued that CPI was the right measure. Then, in 2013, they decided to limit increases to 1% as a temporary measure. Now, whatever happens to inflation, they will not uprate benefits and tax credits for the rest of this Parliament. First RPI, then CPI, then 1% and now 0%.

Our major concern with the way that this freeze is being done is that it both cuts the link between prices and earnings and widens the gap between the income of the poorest and the living standards of the mainstream of society. It uncouples eligibility for support from need, a feature also of changes to the benefit cap and the local housing allowance.

We have been living in fairly benign inflationary times, with CPI expected to rise from 0% in quarter 3 of 2015 to near the Bank of England target of 2% by the second half of 2017—although the components of

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CPI do not necessarily reflect the basket of costs which most impact poorer households. We know that GDP growth is projected by the OBR to be between 2.3% and 2.4% through to 2020.

In considering these matters, we must have some regard to the financial resilience of households and their ability to cope with what will be a sustained real-terms reduction in their resources between now and the end of the Parliament. If we look at the tax and benefit changes under the coalition Government, we see that austerity was used to introduce net tax rises of £13.6 billion and net benefit cuts of £16.6 billion, including pension increases of £5 billion. The IFS analysis shows that, in terms of changes to income, the poorest two deciles did the worst over that period, with working-age households with children particularly hit. The End Child Poverty Alliance reminds us that some 4.1 million families and 7.7 million children have already been affected by below-inflation rises over the last three years. Ministers will doubtless point to the Government’s manifesto commitment to freeze benefits, but I hope that the Minister will acknowledge that that commitment covered only a two-year period, not the four-year period that the Bill proposes.

I am really interested in process. We have a long tradition according to which Ministers are required to assess what people need to live on before coming to Parliament annually to propose what should happen to the levels of benefits and tax credits. Sometimes in this House there is just the noble Lord, Lord Kirkwood, and me in the Moses Room, along with the Minister; but the point is that we got to test the Government’s case before decisions were taken affecting the lives of millions of our citizens. I therefore have two questions to ask the Minister. First, what assessment are the Government making to ensure that there is some link between benefits and tax credits and what a family needs to live on? Secondly, will the Minister assure the Committee and the country that once this Parliament is over, it is the intention of the Government to return to linking the level of benefits and tax credits with inflation and to the practice of Ministers being accountable annually to Parliament for those decisions? I beg to move.

Baroness Lister of Burtersett: My Lords, I will speak in support of all of the amendments in this grouping. The only reason that my name is not on the first one is that I did not spot it in the Marshalled List. The four-year freeze in most working-age benefits represents the largest of the many cuts in the Bill. Conveniently for the Government, it is an invisible cut; gradually people will find that the benefit that they rely on is able to buy less and less, but they will probably blame the cost of living, not realising that it is the result of deliberate government policy. As the Joseph Rowntree Foundation study commented a few years ago, upgrading policies have big effects over time:

“They are among the most significant decisions taken by Chancellors … Their gradual effects seem imperceptible on a year-to-year basis, yet they carry immense implications for the future”.

So let us not underestimate the significance of Clauses 9 and 10.

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Benefits have already been cut in real terms due both to below-inflation increases and to the switch to the use of the CPI rather than the RPI. Moreover, as the latest JRF Monitoring Poverty and Social Exclusion report points out, essentials have risen faster than the average price index in recent years. Since low-income families spend proportionately more on essentials,

“low-income families have in effect experienced a higher rate of inflation than other families”,

meaning that their benefits have been able to buy even less than before.

This latest cut in real value has been described by the IFS as,

“highly regressive, with the bottom three deciles losing most”,

which is hardly surprising. If any noble Lord suggests that benefits are adequate, and that therefore those reliant on them can afford to take such a cut, I suggest that they try living on benefits—not for a week as a benefit tourist, but for months without savings or the kind of stocks that we all take for granted.

The briefing note that we were given spells out two main objects as the policy’s rationale, the first being to deliver savings to contribute to deficit reduction,

“while maintaining support for the most vulnerable”.

To be more accurate, it should say “some of the most vulnerable” since, for instance, children’s and some disability-related benefits will not be protected, as the EHRC points out. Nor does it protect protected groups, with women and black and minority-ethnic groups disproportionately affected. Whatever one thinks of the primacy given to deficit reduction—and eminent commentators such as Martin Wolf of the Financial Times question it and the extent to which it is to be achieved by spending cuts—it is a political choice to make those with the narrowest shoulders bear so much of the burden, particularly when others have enjoyed tax cuts. These, as it happens, were, in effect, paid for by benefit cuts under the coalition Government, according to CASE at the LSE.

As my noble friend Lady Hollis has pointed out in previous discussions, it is a myth that social security spending is out of control. As the OBR analysis shows, over the past 30 years, the real increase in spending has been broadly in line with growth in the economy, so there has been no significant change in the proportion of national income devoted to social security spending. The largest contribution to the increase in spending since 2008 has been the rise in the real value of pensions.

The other main objective given is to,

“help to reverse the trend where earnings growth has been slower than the growth in benefit rates”.

However, this is a very recent trend. Professor Jonathan Bradshaw has used the DWP abstract of statistics to show that the adult rate of unemployment benefit was worth 21% of average earnings in 1972, the earliest date for which there are consistent data. By 2008, the JSA rate had fallen to 10.5%, half of what it was in 1972. It is true that the short-term trend, to which the Government refer, means that it has increased slightly now to 11.7%, but now that wages are expected to start rising again it will no doubt fall back again, even without this freeze.

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The other justification given in the impact assessment is, once again, that it will increase work incentives. It is worth pointing out that some of the benefits affected are paid to those in work in any case, a point to which I will return in the next grouping. As the famous OECD quote used by the Government to justify ESA for new WRAG claimants made clear, work incentives can be improved in a distributionally fairer way by improving in-work benefits rather than adopting this Poor Law mentality of cutting out-of-work benefits. Indeed, a cross-national study reported in the 2009 British Social Attitudes survey concluded that,

“employment commitment is stronger in countries with higher levels of welfare state generosity”.

Therefore, I really do not believe that there is any justification for freezing benefits, not just for two years, as stated in the Conservative manifesto—as my noble friend pointed out—but, in effect, for the whole of this Parliament. I accept that, at present, it looks as if inflation will remain low, but who knows what shocks might hit the world economy and with what effects? It therefore behoves a responsible Government to keep benefit levels under review and to accept these amendments.

Lord Kirkwood of Kirkhope: My Lords, I will add a few comments to what has already been said. I think that Clauses 9 and 10 are terrible. I object in principle, as did the noble Baroness, Lady Lister, to the idea that we can forecast need. I am speaking for myself: I do not know what my party position is or will be, but I am convinced that nothing is more emblematic of the approach of this Government of attacking the working poor and dealing with austerity disproportionately.

That does not mean to say that austerity does not mean to be addressed. The low-income households in this country—in or out of work—will suffer; thankfully, that distinction will become less relevant as universal credit rolls out. I do not think universal credit will come on stream fast enough to help everybody. We have been waiting for the rollout; there are around 155,000 in full compliance with the universal credit system. That will be a much better place to be once the whole country is there but, in the interim, these four years in which we will be freezing these benefits will cost low-income families dear. Why? It is because it is on top of everything else, and I have said that before. One of the biggest disappointments—and I have said this before as well—in the coalition government days was the fact that we did not evaluate the results of the totality of the integrated cuts that were made. That applies to services as well. Now, we are having another four years’ freeze, which is £3 billion or more on top of everything else, without any metrics that begin to contemplate what that might mean for people caught in different, unforeseeable ways by a combination of the cuts.

I have been looking at this area of policy for as long as anybody here, and I am not sure that we will be able to look as far ahead as 2018, 2019 or 2020 with any confidence whatsoever about the conditions that some of these households will face. That is disgraceful and completely unjustified. Of course, the Government are able to found this on the fact that there was a mandate, as it is called, for these measures. Well, there

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was certainly not in Scotland—the evidence for that is pretty clear. I have said before in this Committee that I worry about the political aspects of this Bill and some of the consequences that will be felt in the coming weeks and months of the Scottish elections for the next Holyrood Parliament. This Bill will not have escaped the notice of some of the more hard-line nationalists north of the border, which is not in the long-terms interests of the United Kingdom. I am sure about that and feel really cut off at the knees in trying to explain to people north of the border what is going in.

7.30 pm

I understand that for the Conservatives and others of us here, and for people like us, the benefits system is perfect. There is no problem for us; we can cope. We have choices, wealth to fall back on and resilience. We have family and friends, and bank accounts. Yet for the 10%, 15% or 20% at the lowest levels of household income that people must struggle with—and right now, never mind in 2020—it is very different, not just difficult. They have no choices whatever, so this is piling pressure upon pressure. It is absolutely true that in the old days when I used to go to the early uprating debates, as I think I have been doing for 19 years, I was able with some confidence to go home to my then constituency and say, “We are trying as best we can with the resources available to the nation to share the growth the country generates.” Over a period of time, that has changed. The noble Baroness, Lady Lister, is right to point to Professor Bradshaw’s work which tracked the relative fall in the value of some of these benefits. It is stark—it is compounded and it is never won back. It is a perfectly good question to ask whether, come 2020, this Government, were they to be returned to office, would think about relinking benefit increases to general rates of earning. However, even so, they would never make up this £3,000 million or £4,000 million we are extracting from the lowest income working and non-working families. The noble Baroness, Lady Lister, made an important point on working families, too.

I am really angry that we contemplate saying to the lowest two deciles of income distribution, “It does not matter how much growth the country generates, or how much wealth there is in other parts of the system or with 80% of the population.” That is people like me; I am in the retired group. I sit in a house that I bought for £12,000 in 1972, which is probably worth £600,000 or £700,000 now. All I pay is a frozen community charge north of the border, which is de minimis. My generation and people like us sit in an austerity-free zone. That is how I see it. Yet I meet people all the time who are hit left, right and centre in ways they cannot control or choose to avoid. Clauses 9 and 10 are emblematic of this. They illustrate the difference between the Conservative Government’s mandate and approach compared with the coalition Government days, when at least the issues were weighed in the balance. I was not in favour of everything they did, either, but this is too much.

We must reach a point where we say, “Let’s just wait and see how this works out”. If the country trades itself out of austerity, then we should be more generous

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and think about re-establishing the link. If the country goes in the opposite direction, of course, there may be more adversity that we all must face. My point is that everybody needs to face it more equally. I do not care what is said: we are not all in this together. If anybody ever wanted evidence of that fact, Clauses 9 and 10 demonstrate that beyond peradventure. I will resist these clauses as strongly as I am able during the rest of the Bill’s proceedings.

The Lord Bishop of Durham: My Lords, I support these three amendments. I do not wish to repeat what has already been said but the passion of the noble Lord, Lord Kirkwood, echoes in my heart because I, too, am deeply concerned by the impact these freezes will have on the poorest.

Most of us were delighted when the Chancellor of the Exchequer decided in the spending review that the national economic situation meant that we could, after all, as a nation afford not to make the previously determined cuts in tax credits. If this House had not voted the way it did, I presume he would not necessarily have been given the opportunity so to reassess in the light of the national economic situation. If the Bill is passed as it stands, the Chancellor has no option but to enact a freeze for the next four years.

While accepting that welfare spending must be controlled, we need to look very seriously at the impact on the poorest. I do not want to see the Chancellor’s hands tied to a freeze if the national economic situation continues to improve as forecast, or perhaps even more significantly. Suppose it does: who should be the beneficiaries? Surely, it should be the poorest. If the economic situation improves in 2017 and the Chancellor realises that actually, the nation could afford a slightly higher rate of child benefit or other benefits, that is what he should allow—not give it to people already perfectly well off because we earn enough. As the noble Lord, Lord Kirkwood, said, austerity, frankly, is not hitting large numbers of us. Surely, then, the Chancellor should value the freedom to once again say, “Well, we didn’t think we would be able to afford this but the national economic situation is better than expected so we are delighted to be able to offer a small—or perhaps large—amount of extra support for the well-being of children and the most needy in our country”. Does the Minister not think that would be a good position for the Chancellor to be in, rather than having to stick with a freeze without exception?

Baroness Evans of Bowes Park: My Lords, I thank the noble Baronesses, Lady Sherlock and Lady Lister, and the noble Lord, Lord McKenzie, for these amendments. I will first set out why we believe a four-year freeze of certain social security benefits, child benefit and elements of working tax and child tax credits is necessary.

In total, measures to freeze benefits and tax credits are projected to contribute £3.5 billion of the £12 billion welfare savings the Government are committed to by 2019-20. The Government need to make these savings to reduce the deficit and to manage welfare spending. Spending on welfare increased by 54% in real terms between 1999 and 2010, and tax credit expenditure

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more than trebled over the same period. Despite the progress made in the last Parliament to increase incentives to work and reduce reliance on benefits, there is still more to do.

Some 7% of global expenditure on social protection is spent in the UK, despite the fact that the UK has only 1% of the world’s population. Between 2008 and 2015, average earnings rose by 12%, and the minimum wage increased by 17%. At the same time, benefits such as jobseekers’ allowance increased by 21% and the individual element of child tax credit rose by 33%. The benefit freeze will begin to reverse this trend. However, we are clear that we must continue to protect the most vulnerable. That is why we ensured that certain benefits are exempted from the freeze, such as pensioner benefits, benefits which contribute to the additional costs of disability and care, and statutory payments.

Concerns have been raised about the level of benefit rates after three years of 1% rises, to now be followed by four years of the freeze. Successive Governments have always sought to strike a balance between the needs of claimants and affordability, and I can reassure noble Lords that when introducing this freeze we have had due regard to these issues, but we believe we have struck a balance that protects certain key benefits and generates the savings I have set out.

There are no cash losers with this policy, and the continued growth in wages will help to mitigate the impact of the freeze for working families. The OBR expects wage growth to reach 3.9% by 2020. Around 30% of households will face a notional loss but, as I have said, the other things we are doing in the broader economy should go some way to mitigate it, and I will go through a couple of them in a second. We have also fully assessed the Bill’s impacts on equality and the wider budget meeting our obligations, as set out in the public sector equality duty.

The purpose of the amendments is to replace the freeze with a duty on the Secretary of State to review those benefits, having regard to inflation and the national economic situation. This Government’s overall approach is to give a level of certainty to taxpayers, employees and benefit claimants. As well as setting out the four-year freeze, we have also set out a clear plan to raise the national living wage to £9 an hour by 2020, to increase the tax-free personal allowance to £12,500 by the end of the decade and to double the free childcare available for working parents of 3 year-olds and 4 year-olds to 30 hours a week, which is worth £5,000 a year. The amendments would take away the certainty that we are attempting to implement, and for that reason we cannot support them.

The noble Baroness asked what happens after the four-year period.

Baroness Hollis of Heigham: The Minister has said that this is very helpful to benefit recipients because they now have certainty that their benefit will fall in real terms, as opposed to the possibility that it might keep pace with the cost of living. Would she care to correct her statement?

Baroness Evans of Bowes Park: I have said that we have had to make some difficult decisions.

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Baroness Hollis of Heigham: Difficult for whom? To use the phrase used by the noble Lord, Lord Kirkwood, I suspect that every Member of this House is protected from the difficult decisions. The difficult decisions will fall on those people who will have to choose whether to turn off their heating or pay their rent.

Baroness Evans of Bowes Park: As I said, by being upfront about the freeze, we are trying to ensure that people in receipt of these benefits understand that that will be the situation over the next four years. We are taking numerous other measures, including the national living wage and the childcare changes, to try to help these families in other ways. That is what we are doing with this freeze, and I urge the noble Baroness to withdraw her amendment.

Baroness Sherlock: My Lords, I thank all noble Lords who have spoken in this short debate. I thank my noble friend Lady Lister and the noble Lord, Lord Kirkwood, for highlighting the difficulties that the Government must have in understanding the implications of their decisions, since looking forward four years they have no way of knowing what economic conditions will prevail and what will happen to inflation.

I particularly want to thank the right reverend Prelate the Bishop of Durham for making a very obvious point: that when this House voted on tax credits, the Chancellor was in position to make a difference. The reason why he was able to overturn that decision was that he found £27 billion down the back of the sofa. It is not impossible that there might be some more money down the sofa, if he shakes it hard enough. It is not impossible that, if all the boasts the Government make about the marvellous things happening to the economy come to pass, a couple of years down the line he may find the economic situation is looking good. If the economy is growing again, he may want to reconsider his decision not to share the proceeds of that growth with the poorest in our country. Why on earth would he want to tie his hands?

I would put money on it that if I asked the poorest people affected by this whether they would rather have the certainty of benefits falling in real terms year on year, or keep open the possibility that they will rise if the economy improves, most would be willing to take a chance—unless the Government are suggesting they would in fact cut them. All this amendment does is to allow the Government, if they wish to do so, to have exactly the same savings in four years’ time, but it would make them do two things. Every year, they would have to come back and look the country in the face, via this House, look at what people have to live on and explain their decision, and they would have to account for it. All they would have to do is to put it to both Houses of Parliament every year. What are they afraid of? People out there have suffered enough. The very least the Government can do is stand up for themselves. Given that we are in Committee, I beg leave to withdraw the amendment.

Amendment 95 withdrawn.

Amendment 96 had been withdrawn from the Marshalled List.

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House resumed. Committee to begin again not before 8.45 pm.

Banks: Vulnerable Customers

Question for Short Debate

7.45 pm

Asked by Baroness Hayter of Kentish Town

To ask Her Majesty’s Government whether they have any plans to ensure that retail banks treat their vulnerable customers fairly.

Baroness Hayter of Kentish Town (Lab): My Lords, the story begins with a letter, out of the blue, to a 93 year-old woman, just two days out of hospital, from her bank, giving her, after 60 years with it, “formal notice” that her account,

“will be closed and our contact with you ended”—

allegedly a decision “not taken lightly” though, in fact, it was made after no attempt to contact her, no problem with the account and no reason for any such action, all of which the bank later admitted. Furthermore, the unsigned, computer-generated letter went on to say that, once the account was closed,

“no further standing order will be paid”,


“any cheques presented ... will be rejected with the response ‘account closed’”,

and—the story does not end there—

“should we receive any request for a status report about you … we will reply that we are unable to express an opinion. Lastly, we will not be prepared to offer you any new banking services”.

So an active account, held over a lifetime, was to be closed, and the customer rendered unbankable.

A flurry of exchanges followed, sadly demonstrating a lack of truthfulness by the bank which said that it did not know of any vulnerability about her or her husband. The latter was in a home with Alzheimer’s, the fees were paid through the same account, and the bank held a power of attorney for him and was aware of the lady’s age. All of this the bank later admitted, including that no contact had been made prior to the letter. The bank rectified this case with a bouquet of flowers and with compensation of £750 being given to Alzheimer’s and stroke charities. I fear that it was the intervention of a Member of your Lordships’ House that may have made the difference.

But this is not an isolated story. We have read of Daniel Head with Barclays, the Langleys with HSBC and Barclays again with power of attorney problems, and I have heard of many other examples around this House and elsewhere—so my follow-up is about the wider issue, not this specific case, though the bank remained unhelpful, refusing to say how many such letters were sent, why they went direct from a computer with no personal signature and no senior sign-off despite the gravity of the letter, or whether this happens for an active account held for 60 years.

We have a systemic problem which breaches the legal duty of care under which banks must ensure that they put the interests of their customers first. Indeed, with the support of the Financial Services Consumer

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Panel, we on this side of the House tabled amendments to require the FCA to make rules on the duty of care which the Government rejected. Will the Minister now revisit this decision?

The Consumer Panel has also identified problems over forced bank account closures and wants banks to be more transparent about them. It is claimed that they are about suspicions of money laundering, but they have dire consequences for customers, leaving them with no current account and no ability to open an account elsewhere as they are effectively blacklisted.

The Financial Conduct Authority’s recent paper on vulnerable consumers rightly says:

“Vulnerability can come in a range of guises, and can be temporary, sporadic or permanent in nature”.

However, many banks use a very narrow definition of “vulnerable”. For example, the BBA focuses mainly on mental health, a tiny part of the picture. Vulnerable customers are not a fixed group. Life events like job loss, bereavement, divorce and illness can render any of us temporarily vulnerable. My own view is that while vulnerable consumers are those especially susceptible to detriment, such detriment actually arises, as the FCA admits,

“when a firm is not acting with appropriate levels of care”.

As the FCA wrote:

“Most problems relate to poor interactions ... systems that don’t flex to meet needs … failure of internal systems … where firms fail to communicate … internally … plus … over-zealous implementation of rules”.

So systems are the problem, not the client.

The FCA says:

“Fair treatment of all customers is central to core conduct”—

and this is the lesson I want to draw. Banks must sort out the problems. It should not be for consumers to tell a bank that they are vulnerable. Banks should be treating all customers fairly. Some banks and regulators seem to think that all we need is “full competition”, in the words of the TSB, for,

“consumers … to see a change in an industry that’s been stacked against them for far too long”.

But I do not accept that customers should have to wait for that competition before they get a fair deal.

Contrary to the CMA’s view, customers should not have to switch banks in order to drive up standards. Regrettably, despite evidence of poor customer care, the CMA fell back on the hoary old “competition” let-out: if only there were competition and consumers switched, banks would have to improve. That will not do. Banking is virtually an essential service and customers should not have to put up with poor service, let alone be threatened with the forced closure of accounts.

The Financial Conduct Authority must act to clean up banks’ poor service. If it does not, the Government must tell them to. This is for all clients, not just the vulnerable. Indeed, in the case with which I started, although my aunt—for it was she—is in her 90s, she has every marble and more and is not in debt. However, she had just had a stroke, and did not need her blood pressure raised by finding her bank account closed and being rendered unbankable, possibly even without even access to her funds that the bank held. So for her,

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and for others, I ask the Government whether they have any plans to ensure that retail banks treat their vulnerable customers—indeed, all their customers—fairly.

7.53 pm

Baroness Janke (LD): My Lords, I am grateful for the opportunity to hear from the noble Baroness, Lady Hayter, about the experience that she has described. It is certainly the case that banks need to look at how their systems work regarding vulnerable customers. I was hoping today to raise the wider issue of financial exclusion in the UK, which has been of concern for some time.

The Parliamentary Commission on Banking Standards estimated that 3 million people are financially excluded—that is, excluded from or unable to engage with the financial services necessary to play a full part in modern life, to manage money to absorb financial shocks, and to plan and provide for the future. Information from the Community Investment Coalition states that 9 people million are overindebted; 13 million people do not have enough savings to support them for a month if they experience a 25% cut in income; and 56% of the poorest households do not have home contents insurance. Citizens advice bureaux in England and Wales dealt with 4,907 new debt problems every day during the quarter ending September 2015.

Access to basic banking facilities is an essential part of modern life, as employers and government agencies move away from cash and cheques towards electronic payments. Small and micro businesses are also affected by difficulties in accessing basic affordable financial tools. This impacts on their sustainability and opportunities for growth. Effective tools for savings, payments and accessing credit and insurance can help people to climb out of poverty or get through a crisis or emergency without falling into debt. It can help businesses to survive and grow and not slide into bankruptcy should a crisis occur.

While there is a rapid move to mobile banking, many older people, cash-based businesses and people in poorer communities are still dependent on access to bank branches to manage their money, yet there was a net loss of nearly 7,500 bank and building society branches between 1989 and 2012—more than 40% of all branches.

The coalition Government undertook a series of measures to tackle specific barriers to financial inclusion, including a £38 million investment in the credit union advancement project, while the previous Government provided £74 million for credit unions and community development finance institutions to lend to deprived and excluded communities. Finance education was put on the national curriculum for secondary schools in England, and the regulation of high-cost short-term credit and auto-enrolment for workplace pensions were introduced. Local authorities and housing associations are trialling ways of supporting financial capability and tackling indebtedness.

However, more needs to be done to address financial exclusion. Every adult, household and business should have access to a basic package of fair and affordable finance tools to actively participate in the economy through employment or entrepreneurialism. These should

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include a basic transactional bank account; a savings scheme; access to credit; physical access to banking facilities; insurance; and independent money management advice. Clear action from government must include an examination of community finance provision across the UK to identify where communities have the potential to be well served by existing providers and where there are gaps, and an evaluation of existing affordable finance tools—what the take-up is in poorer communities, whether available products are meeting demand and how these products can be offered more widely.

The Government should give regulators clear direction on the value and importance of the community finance sector and the need to regulate to encourage stability and growth. There should be a scaling-up of the community finance sector to increase investment and access to capital with the creation of a banking licence tailored to this sector. This would include permitting co-operatives to hold banking licences and investing in suppliers of central services to all local community finance providers, such as access to payments, infrastructure and regulatory compliance.

Although progress has been made in reducing financial exclusion, radical change in such areas as digital technology, finance systems, benefits and pensions means that a strong lead must be taken by government if the poorest and most vulnerable in society are to be protected from financial disadvantage and the disastrous outcomes that may result. I very much hope that the Minister will consider these proposals and perhaps be able to describe what the Government are doing to reduce financial exclusion and enable everybody to participate in the modern world without the disasters that we know have befallen many vulnerable citizens.

7.58 pm

Lord Cashman (Lab): My Lords, I congratulate the noble Baroness, Lady Hayter, on securing this important debate. For clarity, perhaps I should point out that although my name is Cashman, I am not a banker.

I have been concerned for some time, as someone who lives in a part of London that is both extremely rich and extremely poor, about the disparity in access to banking services—namely, ATMs. Often when people cannot get to bank ATMs, they have to pay an additional charge when they use them in places such as newsagents. Branch access is another big issue, and the need for clear and jargon-free accounts and information from front-line staff who are properly trained. Equally, as one who has known the concept of vulnerability both personally and within my family, I recognise, as my noble friend Lady Hayter pointed out, that there is a wide definition of “the vulnerable”. Indeed, even those who would be described as vulnerable do not see themselves as being in that category.

However, lots of excellent work has been done. Once again, I congratulate and commend the House of Lords Library service and the documentation it has produced on this issue, which highlights the need for much more to be done—if necessary, with the force of legislation.

I welcome the moves by the European Commission, following its consultation and recommendation, for a directive that would create a right—I repeat, a right—for

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European citizens to open a payment account with basic features, irrespective of their financial circumstances. The directive specifies minimum standards that include: transactional services, direct debit, a payment card, ATM access and the absence of any overdraft. This directive must be supported by all member states.

The banking industry generally has spent more than £300 million, which is to be welcomed and recognised. However, retail banks are not matching minimum standards and many are on a race to the bottom as they seek to freeze out those who require the most basic account in order to function in the modern world, and indeed to gain access to internet services and the competitive processes and prices on the internet, such as low-priced energy deals or telecom deals when paying by direct debit or standing orders.

Banks that have shown real commitment—it is worth mentioning them—are: Barclays, which still remains the only retail bank that will open accounts for undischarged bankrupts; the Co-operative Bank; and Lloyds. The latter two also carry the largest number of basic accounts and thereby the biggest burden, which should be shared more equitably. The Nationwide Building Society has a good record in this area, too, as does Metro Bank, which prides itself on accessibility and welcoming new business.

Here I will address a related issue, of start-up charities and the appalling hurdles and almost insurmountable obstacles that are placed in their way when trying to open an account for a newly established charity, foundation or trust. My own experience is that building societies and virtually all high street banks do not want to open new accounts for charities. The one and only bank that facilitated the process and welcomed this new business was Metro Bank, which complied with all aspects of law and due diligence and showed how it can be done. It is shameful and shocking that other high street banks have turned their backs on such business. I can only surmise that it is because this is an area of work that causes them to work.

To return to the main issue, the vulnerable in our society are being let down by the majority of banks, which will have a tremendous negative impact on the poorest and most needy in our society, especially when we see universal credit rolled out and increasing reliance on payments into and out of banks. People are undoubtedly going to suffer unless something is done. In the Library document there is an appalling catalogue of poor services, poor information, sharp selling, phone lines which cost the user an additional fee by the minute—0845 numbers, and others—continued interdepartmental referrals where people already under stress have to repeat the issue and their circumstances again and again. There is a catalogue of pre-tailored responses to people who are trying in all good will and faith to notify their banks of potential financial problems due to ill-health, bereavement, redundancy, and so on. The catalogue of complaints which have been upheld by the Financial Ombudsman does not make pleasant reading.

Quite frankly, it is shocking that people in need of basic services, let alone basic understanding and compassion, are left sadly and badly wanting, and often with nowhere or no one to turn to. Yet I must

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recognize the tremendous work undertaken—often with much reduced resources—by Citizens Advice, the Money Advice Trust, National Debtline and many other charitable organisations. So, too, the work by the FCA, the Financial Ombudsman, the Financial Inclusion Commission, and the work of your Lordships’ House and the other place in the report of the Parliamentary Commission on Banking Standards. In particular, I will refer to the recommendations of the commission, most notably paragraphs 290 and 291, which can be summarised:

“The Commission believes that banking the unbanked should be a customer service priority for the banking sector. It should be a right for customers to open a basic bank account irrespective of their financial circumstances. The Commission expects the major banks to come to a voluntary arrangement which sets minimum standards for the provision of basic bank accounts. The failure of the most recent industry talks and the apparent unwillingness of some banks to engage constructively in coming to an agreement is a cause for concern … In the event that the industry is unable to reach a satisfactory voluntary agreement on minimum standards of basic bank account provision within the next year, the Commission recommends that the Government introduce, in consultation with the industry, a statutory duty to open an account that will deliver a comprehensive service to the unbanked, subject only to exceptions set out in law”.

I note that the British Bankers’ Association vulnerability task force, under the chairmanship of Joanna Elson, will report in March 2016. Notwithstanding that, I look forward to the Minister’s reply and in particular to hearing not what we should or must do but what we are going to do, and when, to address this major problem which disadvantages so many people from so many different backgrounds and perspectives and which, as I know only too well, could affect any one of us.

8.06 pm

Lord Soley (Lab): My Lords, my comments will follow those of my noble friend who has just sat down and of my noble friend Lady Hayter. I have been concerned for some time about the poor standard of service to many people from the banks. I want to say first of all that I know that improvements are in the pipeline; my noble friend has just referred to some of them, and I am aware of the Practitioners’ Pack that has been issued by the Financial Conduct Authority—all of which are welcome steps. I have also seen one or two improvements on banking websites just recently.

I will focus my remarks on one area which is been a growing problem. It is the issue of power of attorney for vulnerable people. I speak partly from my own experience of having to manage the finances of a relative for whom I have power of attorney. The experience is not a good one and is very difficult to deal with. A very important point here links into what some of the things the Financial Conduct Authority needs to look at as well, which is the relationship between the banks and some of the other financial institutions which persuade people to part with their money, often by direct debit and other means, to pay for services of one type or another.

I will start simply with the example which brought it to my attention—that of my own relative. When I discussed it with other Age Concern-type groups they told me that this was fairly common. When I took power of attorney I started looking into what banks,

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including the bank I was dealing with for my relative, had an easily searchable site for power of attorney. Generally, it was bad news. Barclays has just improved very considerably, and now, if you type “power of attorney” into the search engine you get a number of options. When I typed it into the NatWest website I got no answer, and no answer from the frequently answered questions either. When I typed it into HSBC, which I have never rated very highly for any of these services, the site just told me what power of attorney was—a power that is given to someone else—but did not tell me what to do about it or how to use it, or anything like that.