(13 years, 9 months ago)
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Lord McKenzie of Luton
To call attention to the impact of the Budget on people in poverty; and to move for papers.
Lord McKenzie of Luton
My Lords, I welcome the opportunity to open this debate and am grateful to all noble Lords who are proposing to contribute. I look forward to hearing maiden speeches from four new Members of your Lordships’ House. I also thank the number of organisations that have offered us briefings for this debate. The consistency of their analysis and the intensity of their concerns are startling.
Poverty has many faces, none of them attractive. There are many in our world who live in abject, absolute poverty without sufficient nourishment and with no access to clean water, shelter, simple life-saving medicines or rudimentary education. Defeating such poverty remains, quite properly, a supreme cause of our time. There are, however, issues closer to home that should also command our attention and commitment. These might be described as matters of relative poverty, which, for families, was characterised by the founder of the Child Poverty Action Group in this way:
“Their resources are so seriously below those commanded by the average … family that they are, in effect, excluded from ordinary living patterns, customs and activities”.
It is from this perspective that I would like us to consider the impact of the recent Budget, which cut spending beyond inherited plans by £32 billion a year, as well as raising net taxes by a further £8 billion. Eleven billion pounds of spending cuts will come from specific welfare measures.
In analysing these issues, let me anticipate and deal with the complaint that the state of the public finances gave no room for any other Budget judgment. Our borrowing has risen because the global financial crisis caused tax receipts to fall and spending to rise. The fiscal stimulus led to more borrowing, but it was the right choice to stop recession turning into depression. We had set out our clear deficit reduction plan, which would have brought the deficit down to 5 per cent of GDP in 2013-14. The coalition Budget goes faster, cuts deeper and adopts a different set of priorities. Let us be clear: the Government chose to do this; they did not need to do it.
In March, George Osborne declared that we are all in this together and said that he would not balance the Budget on the backs of the poor. It is by that statement that we will judge him and the coalition Government of which he is part. The Chancellor of the Exchequer claimed his Budget as a progressive Budget, saying that it was tough but fair. Tough it was; progressive and fair it most certainly was not. The Budget Red Book presents various charts to justify the claim of being progressive, but the truth has been laid bare, in particular by the IFS. Only by overlaying the Budget measures with the progressive measures inherited from Labour’s March Budget can the net result be seen as progressive, even taking account of the personal allowance change. Even this must be treated with some caution, as the analysis does not fully factor in all the draconian consequences of the housing benefit measures. It also cannot as yet take account of what is coming down the track from the cuts that will pour from the expenditure review—cuts that will inevitably impact most on the poor.
When we hear that the Budget is grounded in fairness and that we are all in it together, frankly, we beg to differ. We do so because of what the Budget contains in rises in VAT; in reductions in tax credits; in the freezing of child benefit; in restricted benefit and pension uprating; in narrowing the gateway to disability living allowance; and in illogical and spiteful cuts in housing benefit.
I start with the impact of the changes to housing benefit. These changes include taking a reduced level of local rents for the housing allowance; capping rent levels for each type of property; increasing the non-dependant deduction; uprating the local housing allowance rates by CPI, rather than actual rent levels; and docking 10 per cent from the long-term unemployed. These amount to a net cut of £1.7 billion a year—a cut to be met by the poor and those on low incomes. Penalising working-age people who are unemployed is a particularly savage act. The need for reform of housing benefit to improve work incentives is accepted, but a 10 per cent deduction in housing benefit is entirely arbitrary, will cause incredible hardship to those who seek to make up the shortfall from their jobseeker’s allowance and will exacerbate poverty in those very communities where jobs are hardest to come by.
As Shelter points out, the reforms adopting the 30 per cent level rather than the median level of rents for housing allowance will lead to a significant reduction in the amount received by many claimants across the country. Citizens Advice calculates that an average allowance for a two-bedroom property in England will fall by nearly £10 a week, and for a three-bedroom property by £13, worsening existing rent shortfalls. Shelter says:
“We expect that many households will try to remain in their home and be forced to make financial sacrifices in order to do so. For those households already struggling to balance very tight budgets, a reduction in local housing allowance will … push … them over the edge, triggering a spiral of debt, eviction and homelessness”.
This will be made even worse by the uprating over time of local housing allowances by CPI, rather than actual rents, so that the allowance will be increasingly disconnected from rent levels.
The National Housing Federation has warned that these cuts will put more than 200,000 people across Britain at risk of homelessness. It says that they will force families to move, for some away from social and family networks, undermining well-being, employment and childcare opportunities. It will amount, in effect, to the expulsion of low-income families from some communities. These consequences are not difficult to predict. There is no massive affordable housing programme to rely on to take the pressure off private sector rents. If the expectation is that there will be downward pressure on private sector rents, this is a huge gamble being taken with the lives of some of our most vulnerable families. From the Government there seems to be no recognition of the consequences, no compassion and no understanding of the devastation that this will cause to so many who need our help.
I turn now to issues of indexation. Until now, most benefits have been uprated by the RPI, with means-tested benefits by the Rossi index, a variant that excludes certain housing-related costs. Moving to uprating all benefits by CPI will mean that the real-terms value of benefits will continue to fall compared to average earnings and will fall at least 1 per cent faster—although the IFS suggests that this would be closer to 2 per cent—than under previous uprating rules. Without countervailing measures, uprating benefits by RPI was anyway at risk of driving inequality as the cumulative gap with earnings widened. Uprating by CPI will, in the terms of CPAG, cause the downward escalator to move even faster. This is a cut to benefits of nearly £6 billion annually—this when research shows that, because of their spending patterns, people on low incomes face much higher inflation rates than CPI. How does the Minister justify this? What rationale underpins this change, other than reducing the costs of benefits?
The use of CPI does not relate only to benefits; it has a profound effect on pensions and pensioners. More than 10 million people get a state second pension, including 6 million women. The reforms to S2P in recent years have been particularly focused on improving outcomes for the low-paid. The average state second pension is now £36 a week. The switch to uprating this by CPI rather than RPI means a loss on average of more than £2 a week by 2015, with growing losses thereafter. There was no mention of that when boasting about the triple lock. There are also ramifications for public sector pensions and for many private sector occupational pensions because uprating is linked to S2P uprating. This comes at a time when pensioners are faced with the burdens of the VAT increase and no benefit from the increased personal tax allowance. As the Public Service Pensioners’ Council points out, it was assured by all three parties that any changes to public sector pensions would have a long lead-in time and be the subject of consultation. Where was the consultation? It may be fashionable to attack public sector pensions, but many who gave public service are on low or modest pensions and the uprating changes affect them, too. What evidence is adduced to support the Government’s intention that CPI is a better measure of inflation for pensioners than RPI? Given that the coalition agreement specifically recognises that work is needed to amend the CPI index, can the Minister advise us of progress?
We should give credit where credit is due. We welcome the increases in the child tax credit announced for April 2011, even though—as Save the Children pointed out—those on housing benefit will see a reduction in housing support of up to 65 per cent of this increase. However, these increases in child tax credits are dwarfed by a plethora of reductions to the tax credit regime. CPAG calculates that only 20 per cent of the £3.2 billion of cuts will come from reducing entitlement for families on higher incomes. The rest will have a direct impact on low-income families. The increased rate at which tax credits are withdrawn would lose someone earning £16,420 a year £200. Introducing the £2,500 income disregard for households facing a drop in income— a novel invention, I am bound to say—could mean a reduction in tax credits of £1,000, particularly affecting people who take maternity leave or long-term sick leave.
Families with babies seem to have been especially targeted by this Budget, despite the rhetoric around family values. They lose the health in pregnancy grant, the £545 baby element of the child tax credit and the £500 Sure Start maternity grant, other than for the first child. Then there is the demise of child trust funds. The increase in the child tax credit is not enough to compensate for these. Freezing child benefit for three years will have a disproportionate effect on the poor, because child benefit contributes a larger proportion to their household income than it does for more affluent households. Notwithstanding all this, the Government assert that increasing the child element of the child tax credit above inflation to ameliorate the freezing of child benefit will cause no measurable impact on child poverty in the next two years. Will the Minister please confirm that this assessment is made on the basis of all the measures set out in the latest Budget, rather than just those two items? We welcome the Government’s commitment to the child poverty targets but, frankly, this Budget takes us in the wrong direction.
Time does not permit a detailed analysis of how different households might be affected by different combinations of Budget measures, but the Citizens Advice briefing is recommended reading. However, we know that one group will particularly bear the brunt of this Budget—women. This was covered extensively in yesterday’s debate on the role of women. The analysis shows that, of the £8 billion net revenue to be raised in 2014-15, some £6 million will be from women—and this at a time when women still lag behind men in earnings and wealth.
That is just one more manifestation of a regressive Budget judgment. If we needed proof, the choice of a VAT increase as a revenue-raising measure is it. The 2.5 per cent increase in VAT is the biggest single item in the Budget, raising some £13.4 billion. Both the Prime Minister and his deputy are on record as acknowledging that it is a regressive tax, hitting the poorest hardest. The IFS analysis shows percentage income losses for the poorest to be more than twice those for the richest. The Government know that the VAT hike will have a significant adverse impact on the incomes of poor families but chose it in preference to targeted taxes on the assets and income of the wealthiest.
On proper scrutiny, it is clear that the 2010 coalition Budget is deeply regressive. It cuts benefits, reduces tax credits for families on low and moderate incomes, short-changes pensions and pensioners, exacerbates homelessness and chooses regressive taxes. These choices did not have to be made.
We came into politics through a variety of influences. Many of us wanted to bring about social justice, combat poverty and promote equality. The improvement in our own material well-being and our inculcation into grand institutions such as your Lordships’ House may have dimmed or deflected that commitment. However, if that cause needed a catalyst—a call to action—it is writ large in this unfair, regressive and ill judged Budget. We have work to do to expose its excesses and we must use our energies to protect those whose lives will be scarred by its ideology.
Lord Boateng
My Lords, in thanking the noble Lord, Lord McKenzie of Luton, for initiating this debate, I confess a degree of trepidation in speaking to your Lordships’ House for the first time. That trepidation is in no way engendered by the kindness and warmth shown to me and my fellow newcomers to this House by all Members, officers and staff, but by the requirement to be both brief and uncontroversial. That does not come naturally to me. Given the rather rueful faces of some of my noble friends, I think that they probably share that view. Nevertheless, one will do one’s best. I am encouraged in that by the traditions of this House. I first encountered those traditions on the very first occasion that I came to the Palace of Westminster many years ago. I came here wearing flares and with an Afro—when one had hair and wore flares—which tells noble Lords just how long ago that was; it was 14 December 1978.
I came here as a young lawyer accompanying a group of black women from the London Borough of Lewisham. They were concerned about what was happening to their children and other young people in Lewisham—black and white, but largely black—in relation to a piece of legislation known as the sus laws. These women had attempted to initiate a debate about the sus laws in the other place. They had a great deal of support for that from their then local MP, Chris Price, but they did not succeed. The then Labour Government did not want to debate the sus laws or to hear from this group of black women in Lewisham. It was your Lordships' House that found the time and the space to discuss this matter in a debate on a Private Member’s Bill on the sus laws initiated by the noble Lord, Lord Avebury. I will never forget it, nor will I forget the respect that was shown to these women and their concerns by the noble Lord and by the late Lord Pitt, who was one of the first Afro-Caribbeans—my race—to find a place and a welcome in your Lordships' House. He was an inspiration to many of us.
I also remember the contribution of the late Lord Gardiner and the response of the Minister in this House at that time. This House listened. The Motion was not carried, but subsequently a Conservative Government—due very largely to the heroic efforts not only of those women but of the right honourable Sir John Wheeler—abolished this unfair and discriminatory piece of legislation. However, it was this House, with its tradition of being responsive to the needs of those who might otherwise not get a hearing—the poor and the dispossessed—which showed the way. That taught me something which I have not forgotten in the course of my subsequent career in the law and in politics, and which strengthens my resolve to put before your Lordships a concern that those women in Lewisham would have wanted this House to hear, were they here today. It is a concern about the impact of the Budget, and a number of its proposals, on a group of young people who all too often are not heard in our society—young people at risk and young people in care. These are some of the most vulnerable young people in our society. They do not have much of a chance because they tend to go into care, having been subjected to abuse and disadvantage in myriad ways. When they are in care, I fear that the state does not prove to be a very good parent.
This Budget was introduced in the context of the notion of the big society. It seems to me that if the big society is to live up to its name, it has to find a place within it for young people at risk and young people in care. I learned, in the course of putting together the Green Paper Every Child Matters, way back in 2003, that young people at risk and young people in care are to be found not just in the inner cities of our in country, but in rural areas too, because poverty and deprivation can be found all over our land. Young people—young people at risk and young people in care—tend to be the least advantaged of all.
The big society is often juxtaposed with the big state. That is a false dichotomy. It is not a question of whether or not you have a big society or a big state; it must surely be a question as to whether or not the state empowers and enables citizens to make a contribution, to come together to care, and to form sustainable and cohesive communities. I fear that aspects of this Budget work against that. The removal of ring-fencing in terms of local authority grants will, I fear—I am not alone in this; it is a fear shared by many in local government, many social workers and many who run voluntary organisations—lead to a collapse in funding for voluntary organisations, cutbacks in the special support services provided to children in care and children at risk. That would be damaging.
I ask the noble Lord who will reply for the Government in this debate: please, please, in the course of the spending review that must take place, and is taking place, make sure that there is a stream of work that looks at the impact of the budgetary provisions that we are debating on those children in care and children at risk, and the voluntary organisations that serve them, who will inevitably be affected by the increase in VAT and who do not have a rebate system upon which they can rely.
I ask the noble Lord to think also about how the office of the Children’s Commissioner, which is being reviewed, can be strengthened in such a way that it is answerable to Parliament. The Children’s Commissioner should be appointed by Parliament and have a specific remit to examine the implications of all Budgets, presented in any circumstances, on children and young people at risk, so that they do not as a result of a side wind or neglect lead to their being further disadvantaged.
I hope that I have been brief and uncontroversial—because this cause can unite the whole House—but none the less passionate.
Lord Bilimoria
My Lords, it is a great honour to follow the maiden speech of the noble Lord, Lord Boateng. As predicted and as expected, it was excellent. This is just a taste of what we in this House may expect to come from the noble Lord in the many years ahead.
Poverty is a cause which the noble Lord has spoken passionately about for years. In fact, in his maiden speech in the other place in 1987 he spoke of poverty in his constituency of Brent South. He played a leading role in establishing and launching the £450 million children’s fund designed to tackle child poverty—of which he has just spoken. In his young life—the noble Lord is still young; he has not yet reached 60 and middle age will come next year—he has achieved much as a passionate campaigner and activist, as a lawyer who is both a solicitor and a barrister, and he has achieved many firsts, including being the first black Cabinet Minister, as Chief Secretary to the Treasury in May 2002. During his victory speech as an MP in 1987, he famously said, “Today Brent South, tomorrow Soweto!” Of course, he was talking about South Africa being freed from apartheid, but he was also presciently talking about his future appointment as British High Commissioner in South Africa from 2005 to 2009, a role in which he excelled. He has made his mark throughout his career, and we are fortunate that he will continue to make his mark here in this House.
Soon in my role as president of the UK India Business Council I will accompany the Prime Minister on his visit to India, following up on what was said in the gracious Speech. I quote:
“My Government looks forward to enhanced partnership with India”.
Although I was born and brought up in India throughout my childhood, although I visit India several times a year, and although India is today a global emerging economic superpower with amazing capabilities in IT, aerospace and even in space, every time that I get off that plane I am hit by the dire, abject poverty. Sadly, 300 million people there live on less than a dollar a day, and many of those are not living, but merely existing. This poverty exists now as much as it did during my childhood in India and I console myself about the enormity of the problem and the challenges that this most diverse and complex country in the world, with a population of over 1 billion, faces.
Then I think about us here in the UK, one of the largest absolute economies in the world. Whichever way you measure it—absolute GDP or GDP per capita—we are one of the wealthiest countries in the world. We are relatively small, with 60 million people, yet it saddens me that we have such high levels of poverty and child poverty. According to Save the Children, 3.9 million children are living in poverty. There is no excuse at all for poverty in this country. After all, we have one of the most generous welfare states in the world. We have free education; people are entitled to free housing; those without work get an income to live on; and we have free healthcare from cradle to grave—all funded by the state. So surely poverty should not exist at all. And when I say poverty, I mean poverty of any sort, let alone the scale of the dire poverty in India.
Where are we going wrong and what should we do about it? One answer is that the welfare state is meant to address it and the Government are spending massive amounts on it. Public expenditure has reached 54 per cent of GDP, when it should be at around 40 per cent. This has led us to enter an age of austerity, as the Prime Minister put it. How can we maintain a safety net and at the same time work towards eradicating poverty? I am afraid that increasing taxes in the Budget, maintaining the 50 per cent higher rate tax, maintaining the non-dom levy, increasing VAT, and increasing capital gains tax, will not solve the problem. The Government are not meant to be Robin Hood—taking from the rich to give to the poor. We have seen that this does not work and that even in the boom time, with massive levels of public expenditure, poverty increased. The Gini coefficient that measures wealth and equality is the highest that it has been in 30 years, and over the past decade there has been no increase in the average income of the poorest tenth in our society.
The noble Lord, Lord Sheldon, recently asked a Question in this House: what proportion of wealth is held by the richest 10 per cent of the population? The Answer given by the Minister was 54 per cent. This was shown not to be out of line with other countries, with France on 61 per cent and the US on 69.8 per cent. I hope that the noble Lord will forgive me if I say that I strongly believe that the answer is not, as he suggested, to take action to reduce the level of wealth of the top 10 per cent. It is wealth generation that should generate opportunities for wealth creation. I have said it before and I will say it again that the job of the Government is to create an environment for business—in particular SMEs—to flourish and create the jobs that pay the taxes, that pay for the public services, that pay for the welfare that pays for those who genuinely need our help.
However, in my eight years on the New Deal task force and then the National Employment Panel, it became very apparent to me that work was the best way out of poverty. Yet, sadly, millions in this country are in a benefits trap where generations in certain areas have not worked, because work often does not pay. The difference between welfare support and a 40-hour week on a minimum wage is £37 a week—hardly enough to inspire people in difficult times to seek jobs. For this reason, the welfare reform Bill is welcome in its efforts to simplify the benefits systems, remove barriers to work and attempt to lessen the hold of the awful benefits trap that exists in this country.
However, it is even more challenging when our schools are letting our children and our country down, where over a third of 11 year-olds leaving primary school have difficulty reading, and a fifth leave their secondary school without being able to read and write with confidence. This makes it very difficult for them to be employable.
In my role at Cambridge University as a visiting entrepreneur and a member of the advisory board, I was presented with a paper from Professor Radjou, Jaideep Prabhu and their colleagues on whether the UK can win in an age of scarcity. Their theory is: “more for less for more”—an approach that places emphasis on delivering more value for less cost for more people. If necessity is the mother of invention, as they say, scarcity is the grandmother of innovation. This is where a developed economy such as ours can learn from some of the amazing innovative models that have been pioneered in emerging markets such as India, Brazil and China.
We have such advantages in this country. We have the finest higher education in the world and cutting-edge research. One university, Cambridge, has produced almost 90 Nobel Prize-winners. Our greatest strength is our people. The Government alone cannot eradicate poverty, even with the best of intentions; we have to work together, and this is where NGOs working together can really help, as we have heard. The coalition Government’s answer of promoting the big society and getting communities to work together is fabulous. However, is it not ironic that a big society goes hand in hand with smaller government? It is about people coming together to care, share, help each other and prosper together.
This country used to have a glass ceiling. As recently as three decades ago, it was not a meritocracy. However, today this country is a true meritocracy. It enabled me 21 years ago, with £20,000 of student debt to pay off, to start up a business from scratch. This is a country with opportunity for all, and the poorest person is given hope by that opportunity.
Earlier this week, we in Parliament had a visit from Bill Gates, one of the wealthiest men in the world. He addressed Parliament on development. How inspirational that here is an individual giving away tens of billions of dollars. He changed the world through his business; now he is going to change it through his development work on the alleviation of poverty. I have a saying that achievement leads to inspiration; inspiration leads to aspiration; aspiration leads to achievement—and a virtuous circle follows. We can just imagine that if only we had that virtuous circle in every corner of this country, we would obliterate poverty and genuinely make it history.
Recently, I met those running a charity in India called the Akshaya Patra Foundation. The foundation has a vision that:
“No child in India shall be deprived of education because of hunger”.
Today, it reaches 1.2 million children every day, giving them lunchtime school meals. However, the sad reality is that it has had to adjust its practices. On Monday, after the day off on Sunday, it has to provide double the amount of food for the children because they have not eaten on the Sunday. That is true poverty, and it depresses me that this wealthy nation of ours has poverty in the 21st century. We should be ashamed of ourselves. Our people need to come together, helping one another to succeed. We need to raise the water level for all the boats to float and to get bigger, and that is going to take a huge amount of work from government and NGOs and from communities and citizens. A friend of mine defined luck as being when opportunity meets determination. We have the opportunity; we have to be determined as a nation.
I conclude by quoting Jawaharlal Nehru’s famous “Tryst with Destiny” speech made on the occasion of India’s independence in 1947, as it is pertinent to what we are talking about:
“The service of India means the service of the millions who suffer. It means the ending of poverty and ignorance and disease and inequality of opportunity. The ambition of the greatest man of our generation”—
he was talking about Mahatma Gandhi—
“has been to wipe every tear from every eye”.
Baroness Donaghy
My Lords, since I was introduced on 1 July, I have been overwhelmed by the warmth of my welcome and the generosity of noble Lords on all sides of the House in sharing their experiences with me. I am grateful, too, for the dedication and friendliness of the staff, who seem to be able to read my mind when I am uncertain about geographical direction or procedure. I thank them most sincerely for their care and support.
As a former chair of ACAS, my first instincts are to form a consensus based on bringing the parties together. I am not sure whether those skills will be useful in this House. I know from experience that, when the going gets tough, it is difficult to promote agreement between employer and workers but that it is infinitely more difficult on occasion to achieve agreement among members of the same side. If the coalition Government were ever in need of mediation skills, I would be available.
ACAS’s contribution to the modernisation of public services was to recognise that the world of work was not just about collective bargaining but about the millions of individuals, both employers and employees, needing advice. Radical changes were achieved with the involvement and consent of the staff and trade unions in ACAS, and without the demotivating effect of so many pronouncements about public service workers. Calls to the ACAS helpline amounted to 1.2 million last year, and the website is much praised by employers and employees because of its quality and impartiality.
The subject of poverty has been a theme that has threaded throughout my life. On the day of my introduction to this House, one of my cousins gave me a copy of a payslip belonging to our late grandfather, Arthur Howard. It was for £1.53, dated 11 November 1933, and came from New Monckton Collieries near Barnsley, where he worked for most of his life. He brought up four daughters on that wage, played the cello and built the first television in Worsbrough Common. He had no money but a wealth of talent and unfulfilled promise. My own parents taught me the value of work, education and caring for others.
After university, I worked at the Institute of Education in London for 33 years. I had become an assistant registrar at a very early age and was probably destined to be a registrar or secretary, or to fill a role with one of the newer titles in universities today. I was fortunate to work for the great Lionel Elvin, our director, who had been a member of both the Robbins and McNair committees, and then with Sir William Taylor. Both instilled in me the importance of teacher training and education. So what happened to change me from going in the direction of a potentially glittering university career?
The institute took a decision in 1969 not to give a pay rise to its clerical and library staff on the ground of affordability. Academics were given a pay rise. I decided that it was patently unfair to pick on the lower paid and helped to form a union branch of NALGO. No one had ever been in a union before. We lobbied the institute and were awarded our pay rise, backdated. I carried on recruiting members and for 16 years was privileged to represent all clerical and related staff in universities in their pay negotiations, and set up national pay scales for the first time. Ninety per cent of the members were women and 90 per cent were first-generation trade union members. I spent most of my career boxing and coxing between my paid employment and my unpaid trade union activity. I moved within the institute to become permanent secretary of the students’ union and was licensee of the union bar for 16 years. I am aware that some noble Lords on different sides of the House have owned breweries, and it is possible that some of them have been their occasional customers, but I suspect that very few have actually been licensees.
After 13 years on the TUC General Council, I became its president. I would chair the General Council and then sometimes appear before the magistrates’ court to apply for an extension to opening hours in the students’ union bar. Such were the contrasts in my dual life.
In 1997, the continuing theme of poverty arose when I was appointed a founding member of the Low Pay Commission. This was an absolutely wonderful experience, and I like to think that my practical experience of wage structures and the impact of low wages helped to set up a framework that is virtually intact today. We learnt that poverty is complex—a single mother in the south-east would have to earn over £17 an hour to make up any loss in benefits—yet we fixed on £3.60 an hour because the minimum wage cannot solve everything. We learnt that poverty is not a north/south or even a regional phenomenon. The largest proportion of low-paid workers, in terms of population, live in London and the south-east. We also learnt that the low paid need no lessons in hard work or the ability to calculate their earnings. Observing textile workers calculate their complex piece-rate earnings in their heads to the nearest penny would impress any mathematician.
The noble Baroness, Lady Wilcox, in moving the regulations concerning the national minimum wage on Monday, was kind enough to say that the proposed increase for this October,
“strikes the right balance between ensuring that low-paid workers are treated fairly and preventing adverse economic effects. It is based on sound evidence and consultation, and takes into account the present economic circumstances”.—[Official Report, 19/7/10; col. 888.]
Those criteria were established at the start of the Low Pay Commission’s work, and it is gratifying to see that this evidence-based work continues and is appreciated by the Government.
I am aware of the recent short debate on poverty on 15 June, initiated by the noble Lord, Lord Kirkwood of Kirkhope, and of the excellent contributions that were made. It is not my intention to go over the same ground. I am aware that the measure for poverty might seem like a dry academic debate to some, but if an official poverty measure is changed, it can be used as a respectable excuse for taking away support systems from those who do not fit the new criteria. The Government have promised to maintain the target of ending child poverty in the UK by 2020, and I shall watch this with interest.
There are people now seeking work who are healthy and motivated and have a good employment history, but they cannot find work, so how will those with disabilities, language and literacy barriers or no work record find work? Joblessness is a scourge on any society and the Government will be judged on how many people are unemployed. The margin between poverty and just about managing is perilously narrow. Cutting pennies here and there from benefits, VAT costs, pay and pensions may not seem a lot to those who are privileged to lead society, but together they will have a catastrophic outcome for individual families.
We are a country of extremes in income and no Government have solved that particular inequality. I make a plea to this Government that more work should be done on why we are a relatively low-wage society. Average earnings of £24,000 a year include paid overtime—mainly done by men—and City bonuses. That completely distorts the real situation. Just as we on the Low Pay Commission discovered, women who earned too little to pay national insurance did not appear on any statistics and could not therefore be counted as a group that might benefit from a national minimum wage. Clearly, steps were taken to rectify the Alice in Wonderland situation, but it shows that statistics without common sense and grounded reality can be used to hold back progress, sometimes unintentionally and sometimes not.
The Economist on 3 July stated:
“The past decade made a disappointingly small dent in poverty, but it may be the best time the poor will know for many years”.
I look for an assurance from Ministers that that grim forecast will not be realised.
In conclusion, I thank my two sponsors, my noble friends Lady Dean of Thornton-le-Fylde and Lord McKenzie of Luton for all their help and encouragement. I offer particular thanks to my noble friend Lord McKenzie for raising this topic today and for giving me an opportunity to make my maiden speech on a subject about which I feel so passionately.
Baroness Jones of Whitchurch
My Lords, I congratulate my noble friend Lady Donaghy on her passionate and informed maiden speech. I would have expected no less of her, having known and admired her abilities for nearly 30 years. I first met her when we were both trade union officials in the university sector in London in the 1980s. Since that time she has had an impressive trade union career becoming the president of both her own union, NALGO, and then president of the TUC.
Following that time, as we have heard, she served as chair of the Advisory, Conciliation and Arbitration Service for seven years, helping to make it into the modern and effective organisation that it is today. It was also one of the periods of the lowest industrial unrest in its history and, as she has indicated, I am sure these skills of bringing peace and harmony to potentially warring factions can be put to good use in your Lordships’ House, not least among noble Lords on the coalition Government Benches. Finally, lest anyone might think that her skills are on the soft side, she also served on the Committee on Standards in Public Life for seven years before becoming its interim chair. I am sure that she will play her part in keeping us all in line in the years to come, with her trademark reputation for intelligence, independence and straight talking.
I add my congratulations to my noble friend Lord Boateng on his passionate and inspired maiden speech and very much look forward to the maiden speeches of other noble Lords in this debate.
Before I start, I declare an interest as the chair of Circle 33 housing association and record that I am a volunteer in The Passage homeless centre in Victoria. I, therefore, have some direct experience of the fine line walked by some of the most disadvantaged and vulnerable in our society, for whom managing a weekly budget and staying out of debt is a constant trial and burden. It takes only one trigger—perhaps a partner leaves, someone falls ill or an employer closes down—for an individual or family to fall behind with their rent and face homelessness. When you are already living in poverty the financial margins are tight and the consequences of default can be devastating. I say that in the confident knowledge that the previous Government—my Government—both understood this fear and acted on it. They understood that you could be working but still poor and they introduced the working families tax credit to make work pay. They understood that a child brought up in poverty would bear the scars for life and so they increased child benefit and set a goal of ending child poverty completely by 2020. They invested in jobs and training to give people the skills to get secure and rewarding work.
Of course, not everything they did was perfect and not all their ambitions were achieved but I am proud of a Government who invested in public services, reduced unemployment and raised people out of poverty. We went a long way to creating a fair and benevolent society in which the poorest and most vulnerable were protected.
That brings me to this Government’s Budget and what it tells us about their values and beliefs. First, they seem to have abandoned the post-war Keynesian analysis that government fiscal and monetary measures can mitigate against economic recession. Instead, we appear to be returning to a rather alarming 1930s free market programme, which became discredited first time round and now risks driving the recession into a deeper and longer trough. Of course, there is a need for a clear deficit reduction plan and part of that will inevitably include tough choices on spending. But in the current fragile world economy, there is a particular imperative to prioritise growth as a precondition for economic recovery. That remains Labour’s strategy. It is based on sound economic modelling and was already proving to be successful in stopping our economy sliding into a recession. Therefore, the question remains: do the current Government have an alternative growth strategy or are they happy to let high unemployment and increased poverty act as the drivers for future economic policy?
Secondly, despite their election promises, they are intent on squeezing public services and cutting front-line staff. It is obvious to everyone that departmental cuts of 25 per cent or even more can be achieved only by wholesale services being abandoned. Those public servants who are lucky enough to remain will have their income and, therefore, their spending power reduced as a result of the freeze in public sector pay, while those who are made redundant will cost the country billions in lost tax revenues and increased benefit bills. The consequence of this policy is bound to have a further depressing effect and will, of course, particularly impact on the poorest regions where public services play a particularly valuable role.
Thirdly, they appear to be abandoning the goal of ending child poverty by 2020. At present nearly 4 million children are living in poverty in the UK. We know from previous research that child benefit has proved to be one of the most effective and popular ways of cutting child poverty so freezing it for three years will hit the very families who need it the most. Again, this will prove to be a false economy because respected research from the Joseph Rowntree Foundation has estimated that £17 billion every year could be saved from public spending if child poverty was eradicated.
Finally, to return to a subject particularly close to my heart, the cuts in housing benefit will cause hardship to many and may well push families in high-priced areas on to the streets. There has of course been a need to reform housing benefit for some time, but the cuts proposed in the Budget are not the solution. There is a myth developing that housing benefit claimants are wayward families bent on living the highlife. In truth, as Shelter research has confirmed, the vast majority are pensioners, those with disability, people caring for a relative, or hardworking families on low incomes, while only one in eight is unemployed. At the same time, nearly half of local housing allowance claimants are already making up a shortfall of almost £100 a month to meet their rent, so further cuts to this benefit could trigger a spiral of debt, eviction and homelessness.
Of course, at the heart of this problem is a critical shortage of affordable housing, which means that more and more families are forced into the private rented sector, often into inferior, poorly maintained properties with rents that are almost double those in the social housing sector. It is this lack of affordable housing that the Budget could have, and failed, to address.
This coalition Government have made the misuse of the English language into an art form. The use of words such as “fair” and “progressive” to describe a Budget that is blatantly neither of these things has rendered those words obsolete in their true sense. As the weeks go by and the consequences of the Budget are spelt out, it is becoming clear that the government agenda has at its heart an ideological drive to promote the free market, close down public services and hand over the remaining services to private multi-nationals. It is a policy that is increasingly saying to the poorest and most vulnerable, “You’re on your own. If you’re lucky, a charity or a private philanthropist will come to your rescue, but don’t expect anything from us”.
Interestingly, this attitude was notably absent in the election campaign. Prior to that, there was lots of talk of compassionate conservatism, but now there appears to be a view that compassion is for wimps. Budgets are inevitably about global statistics and calculations running into billions of pounds and affecting millions of people. But behind those statistics are real people, like the ones I work with at The Passage whose lives are on the margins of success and failure, for whom small shifts in their fortunes make the difference between a job start or staring at a wall all day, between paying their rent or being on the streets. These are the people I fear for with this Government’s policies, so I hope that the Minister is able to reassure me that my fears are groundless and that those at the bottom of the economy really will be protected in the years to come.
The Earl of Clancarty
My Lords, it is a great privilege to have been returned to your Lordships’ House following the recent Cross-Bench by-election and I thank everyone for the warm welcome that I have received. I have very much enjoyed the remarkable maiden speeches that we have heard today and look forward to those yet to come.
We have of course many experts in the Chamber today, but perhaps the biggest experts of all on the subject of this debate are not present. They are the poor themselves. I believe that they should be here in the Chamber somehow, for the simple reason—and it seems common sense to me—that the views of the poor should be heard in a debate on the poor. It is a question of representation, since those who are poor and on the margins of the mainstream are effectively denied a voice. This is the reason, I think, why we still have something called “poverty” in our sophisticated western society.
I was once a little closer to this form of expertise; I was on benefits myself, specifically income support. This was in Sheffield in the 1980s at a time when unemployment was less reviled than it is now, partly because of the sympathy for those working in the coal-mining and steel industries who had been put out of work.
I suggest that poverty as an experience is actually very simple, even if the bureaucracy that has accumulated to deal with it, including the benefits system, is complicated and public attitudes themselves are convoluted. I think that over a period of decades we have become, with a larger middle class, more aware at least of the idea of poverty, but perhaps less tolerant of those who remain unemployed, in the sense, of course, of not having paid work.
I believe that there are really just two things that a Government should bear in mind about poverty. The first is money. This Government are freezing benefits and capping the housing benefit. Sheffield was then, and still is, cheaper than London, but income support was impossible to live on then; today, with a personal allowance rate of £51.85 per week for the under-25s, who have been hit the hardest by this recession, I would say that it is absolutely impossible to survive on. Whatever you read in the newspapers, it is difficult to survive on most benefits.
The second and related issue is the stigma of being unemployed, by which I mean not having paid work, which is not necessarily the same as not working. For everyone on basic benefits, this stigma is now less connected with unemployment; it is more about being off the map and unvalued as a citizen. I believe passionately that one should be regarded as a citizen whether one is in paid work or not—indeed, whatever one’s status. That means that if you do not have an income, or have a low income, the state should pay you a decent rate on which to live.
The very language that the new Government use perpetuates the stigma. For example, The Coalition: Our Programme for Government says:
“The Government believes that we need to encourage responsibility and fairness in the welfare system. That means providing help for those who cannot work, training and targeted support for those looking for work, but sanctions for those who turn down reasonable offers of work or training”.
Carrot and stick, carrot or stick, it does not matter—this is still, in an old-fashioned sense, a perpetuation of an “us and them” situation for the poor who, in comparison with the poor in Victorian times, are highly articulate and educated and have expectations.
If we were not so wedded to the entirely constricting idea of paid work being the measure of all things, we would solve poverty overnight. However, by these restrictions on benefits, this Government are saying that we cannot afford to do so. Like others, I believe that this Budget owes its inspiration much more to political philosophy than to national need. The Green Party for one, now represented in Parliament at last, believes that we should not be having these cuts at all and that we should be doing quite the opposite and creating jobs in the public sector.
Another example of this same stigmatisation are the powerful television adverts which are supposed to target, in their words, “benefit thieves” but which in fact, I believe, help to criminalise people who are claiming benefits. Just as bad is the fact that no Government yet have run TV adverts advertising unclaimed benefits, which is a little bit like the “finders keepers” rule. Why do a Government who would claim to lift people out of poverty not chase down as assiduously the poor who do not know how to claim benefits as ferociously as they do those who may be claiming too much? It is easy to build up a head of righteous indignation over those who it is said are abusing the system, but are we not truly abusing the system if we do not reach out to those who are so caught in the poverty trap that they do not even know that help exists, let alone how to claim? I would like an answer from the Minister as to whether the new Government would consider running such TV adverts.
Where should we be looking for answers? Is it appropriate for charities to fill the gap? I notice this week from the Evening Standard that the Government, in a supposed time of national austerity, are providing £1 million of matching-funds to a newspaper editor’s project to dispense largesse to the poor, piecemeal via a number of charities. This is David Cameron’s big philanthropic society in action, turning the clock back to a Victorian society in an age when the poor do not want to be, and should not be, patronised. I am not saying that individuals might not be helped by this, or that charities are not fine, but the proper purpose of charities is, in my view, that they do—yes—a significant job of stepping into the breach when a Government fail to do the appropriate and long-term job that they should do. I would support a Government who said, “We will make all the charities that cater to poverty redundant by such and such a date”.
I can give one example of a government policy that seemed to address the twin evils of money and stigma. From income support, I went on to the original enterprise allowance scheme as an artist. Of course, the scheme did not suit everyone at the time—those who had worked in traditional industries in and around Sheffield just wanted their old jobs back—but a number of things made the enterprise allowance scheme unique.
First, you were instantly destigmatised, because as soon as you were self-employed, you were considered to be working, although—this is the significant point—you might not yet have had any income from your work except for the small weekly grant that you received. Secondly, there was no bureaucracy. The business plan was easy for anyone to fill in. You did not have to be a businessperson to do that and you were not judged according to how the business might do, although some people later became highly successful commercially as a result of being on the scheme. Thirdly, they left you alone—a mark of respect and trust. Fourthly, you followed your dream, or simply continued with your work, for which one might say that the state was paying, although not very much.
Unfortunately, the enterprise allowance scheme did not last. It was watered down and then scrapped as the big stick once more came out, but it is being looked at again. It features in the recent Arts Council England report, Creative Survival in Hard Times. I understand that the Government are taking an interest in the original scheme and I would like to know whether they are thinking about reintroducing it.
I believe that the only way to cure poverty is finally to accept that there will never be full employment in terms of paid work unless the state itself fills that gap and assumes and respects people’s contribution to society irrespective of their income.
Lord Shipley
My Lords, it is with a great sense of privilege, tinged with a certain degree of nervousness, that I rise to make my maiden speech in this debate, particularly after so many distinguished contributions and excellent maiden speeches have been made already. I thank all the staff, all my colleagues and my sponsors for the warmth of their welcome and for their willingness to go out of their way to explain the workings of the House to me. There is much to learn. The support that I have received has been exceptional and I am deeply grateful for it.
I am a Yorkshireman by birth, although not from the town whose name I bear. I was born and brought up on the Yorkshire coast, in Whitby, but have been an adopted Geordie for the past 40 years in Newcastle upon Tyne, where I worked for many years for the Open University and where I have been a councillor for more than 30 years. I would like to concentrate on that latter connection in this debate.
Last year, Newcastle City Council was appointed as one of three beacon councils, along with Cornwall and the London Borough of Tower Hamlets, in addressing child poverty. Forty per cent of Newcastle residents are in the lowest national deprivation quintile—twice the average England figure. Men in that quintile have a 10-year lower life expectancy than men in the least deprived quintile, while women have a seven-year lower life expectancy, so reducing child poverty could have a major impact later in life in terms of life expectancy.
One in three children in Newcastle lives in poverty, according to official definitions, compared to just over one in five in England as a whole, so the need for us locally to take action to mitigate child poverty has been stark. In Newcastle, we have learnt a number of things. The first is that it is important to understand the diverse needs of local communities and to empower all of our partners to go much further than just engagement.
Although child poverty is closely related to financial deprivation, deprivation of experience and of aspiration can both have a massive impact on a child’s future opportunities. Teachers have to work hard to help children in deprived neighbourhoods to reach their age-expected levels of attainment. Imagine, for example, the hurdles that children have to get over in comprehension exercises when what is being described bears no relationship to their experience. That is why personal enrichment through education remains the key to social mobility and it is why a pupil premium proposed for children in disadvantaged areas could be so important. Educational achievement grows from raised aspiration, which in turn results from enriching the experiences of all our children.
Addressing child poverty is not just about the level of benefits or a fairer tax system. Although both of those are crucial, neither is designed as a measure to abolish child poverty on its own. For example, measures to combat fuel poverty and making our homes more energy efficient are of great importance to families on low incomes. In Newcastle, we have had great success with our Warm Zone initiative in cutting fuel costs by more than £3 million a year.
Abolishing child poverty by 2020 is a commitment. That is why employment and skills matter so much and why we in Newcastle have decided that reducing child poverty is the not just the business of children’s services but our core business across the whole of the council and the whole of the local strategic partnership. We have introduced projects to promote intensive multi-agency support to individual families. For example, there has been the Barnardo’s young dads’ project, which engages young men in developing their skills as fathers and promotes their literacy and numeracy and their skills for work. There is family learning in schools, which gives parents the chance to learn new skills and to help their own children to learn. Parents can spend up to a day a week in school with their child.
In Newcastle, Moorside Community Primary School is one example of a school that does not allow deprivation to be an excuse for low expectation. A majority of Moorside’s pupils live in areas within the 10 per cent most deprived nationally, but the school has raised attainment and aspirations of children and has increased opportunities for parents to enter employment, education and training, which has had the effect of reducing benefit claimant rates. Key to that has been the appointment of parent link workers to enhance relationships between school and home. Through family learning at Moorside, several hundred parents have obtained accreditation from courses that they have taken, with awards being presented in front of their children, which has a big influence on raising aspirations of both child and parent. Parents are then supported to progress further through link agencies such as Newcastle Futures, which we set up in partnership with the Government to find solutions to worklessness and which has helped more than 1,000 long-term jobless people into work.
However, research by Barnardo’s has shown that, although work is often seen as the best route out of poverty, low pay can still keep families in financial poverty. That is why taking low-income families out of income tax altogether, as proposed in this Budget and future Budgets, matters so much.
In conclusion, children who grow up in poverty are less likely to attend school regularly, to stay on at school, to obtain qualifications, to go on to higher education or to aspire to well paid employment. The gap in attainment between children receiving free school meals and other children is marked. The obvious follows. Reducing the number of children who grow up in poverty will increase the number of young people with chances to succeed as adults. That success will increase the life chances of their children and in turn promote a cycle of aspiration.
I thank your Lordships once again for the warmth of your welcome and for the opportunity to participate in this debate. I greatly look forward to making further contributions to the work of the House in future.
Lord Best
My Lords, I congratulate all those who made their maiden speeches today. We have a wealth of new talent among us. I also congratulate the noble Earl, Lord Clancarty, who has rejoined us on the Cross Benches, on his powerful contribution. As president of the Local Government Association, I must welcome the noble Lord, Lord Shipley, particularly. He will be another strong voice for local government, which will be very important in this era of localism and devolution of power from the centre to local government. He brings us expertise from the public and private sectors; from academia in a very distinguished form; and from the arts, which Newcastle and Gateshead have done so much to promote over recent years.
Most of all, the noble Lord has been a councillor for 35 years and since 2006 has been leader of Newcastle City Council. Newcastle has seen the most incredible transformation in recent years. I have followed its progress wearing various hats in the housing world and as the father of a student at Newcastle University, which has entailed endless visits to that vibrant and exciting place. Over the years in which the noble Lord and his predecessor, the noble Lord, Lord Beecham, who we will shortly welcome here, have been responsible, they have done so much to change a great city. I congratulate the noble Lord on a most eloquent and articulate speech, and we look forward to many more contributions of that high calibre.
I thank the noble Lord, Lord McKenzie of Luton, very much for introducing this debate. He has drawn attention, among other aspects of the ways in which the Budget impacts on people in poverty, to the problems that will be created by reductions in housing benefit. I want to share with your Lordships some thoughts on the ways in which the housing benefit cuts may have an effect.
The intention is that the Budget will see a reduction of some £2 billion each year in the amount paid in housing benefit, which means that a hit has to be taken either by the landlords or by the tenants. There are no other sources from which we can draw that £2 billion of savings each year. In other contexts, I will explore with your Lordships some of the impacts on landlords in facing a situation in which their rental income is likely to reduce but today I want to concentrate on the impact on tenants.
The cuts that are to face tenants who receive housing benefit, or in the case of those in the private rented sector the local housing allowance, are in several different forms. The first is the cap on rents in the London area. Although we may hear shock-horror stories of a handful of families with many children who have received as much as £2,000 a week for their accommodation, these are very few and far between. The new cap is to be set for the largest families at £400 per week. One would think that that is quite a large sum, but it is not so in inner London where that is the amount required to house families. Indeed, it is impossible to find accommodation in many parts of inner London at that price.
This will mean that the families whose rent is currently well in excess of this figure will have to move away from inner London to accommodation elsewhere, which is likely to be incredibly disruptive of family life. For example, there may be children at school, carers close at hand, people with disabilities who know a particular area and have no desire to leave it, people who go to a hospital locally and wish to remain there, and people in a range of circumstances who will find it very difficult to relocate to other parts of the country in order to avoid the gap which could be, in the case of inner London, several hundred pounds a week between the rent that will be paid in the future and the actual costs of their accommodation. We need to think ahead to how we will handle the exodus of the lowest income households from the high-priced areas of inner London.
There is also the cap that comes from using the 30th decile instead of the 50th decile in determining the housing benefit for a household, which is a complicated business. It means that in a lot of cases people will again, all across the country and not just in London, find that there is a gap between what they receive in housing benefit and the market rent in the area in which they are located.
Other reductions follow on top of those. If you are living in accommodation deemed to be too large for your needs, there will be a housing benefit cap relating to the size of accommodation in which you are living. If, for example, you are in a three-bedroom council property but it is deemed that you could well do with only a two-bedroom or a one-bedroom place to live, you will be required to move or you will not receive the full rent to continue where you are. The problem with that is that councils have built over the years five times as many three-bedroom homes as they have built of any other size. The actual opportunities to move to the smaller accommodation, until we build more homes, may be rather complicated. If you are living in a tower block, it is likely that you are a single person. Local authorities have been reluctant to put children into the three-bedroom accommodation in towers because of the impact on family life. These are restrictions that families will face.
There is a further restriction if you are on jobseekers’ allowance and are unemployed. Whatever efforts you are making to secure employment, if you fail to do so your housing benefit will be cut by 10 per cent after a year of looking for a job, even if you are in an area of high unemployment. Even if you have been demonstrating that you have been trying your very best to get employment, you will still see a deduction from your housing benefit.
I accept that in some cases landlords will be willing to cut the rents and take a lower rent than they have in the past. That is particularly the case in those low-value areas where a large proportion of those tenants coming to them are on housing benefit. That is not the case in London and in the high-value areas where there will be plenty of choice of other people to accept. Frankly, landlords would be ill advised very often to take anyone who was in receipt of housing benefit. Those people will have to move on and it is not at all certain to where they will move.
We heard about the spiral of arrears, followed by evictions, followed by homelessness, which seems to be a likely outcome in far too many cases. For other people, there will be attempts to struggle on and find the full rent to stay in the accommodation or to move into accommodation elsewhere even though there is a gap between the housing benefit received and the rent that must be paid. That gap would have to be filled from the income support or other benefit being received by—let us remember—some of the poorest people in society. It will be extremely difficult for people to meet that gap out of the income they receive from the state on benefits calculated specifically to exclude any housing costs. They are benefits paid in order to cover food, heating and other costs, but not housing. To fill that gap from within their benefits will be extremely problematic for the poorest households.
Perhaps I may suggest four ways in which the Government might need to respond to the position in which they find themselves. Few people doubt that housing benefit requires an overhaul. It is a very complex arrangement which could do with changes. First, I suggest that we need to phase the cap for those London households which will have to move to the edges of London or beyond. We will need to take that more gently and slowly than at the moment—at the anniversary of your rent coming up—and suddenly finding a colossal cut in what you can pay to your landlord.
Secondly, the discretion for local authorities to make up the difference requires a larger fund than the one that the Government have set aside. They have said that £60 million is available to councils to top up those families and individuals for whom there is that gap. The £60 million is against a backdrop of a £20 billion a year housing benefit expenditure. That £60 million will not go very far. It would go towards two to three families in each local authority area for a year. The sum for local authorities and the discretion that they have needs to be increased.
Thirdly, it would be wise if job centres could certify that people had done their very best to get jobs and they should not have their housing benefit cut by 10 per cent. Finally, I would ask the Minister to ensure that there is now dialogue with Citizens Advice, Shelter, the Chartered Institute of Housing and others who have ideas on how one can make the most of a very difficult situation.
Lord Watson of Invergowrie
I congratulate my noble friends Lord Boateng and Lady Donaghy as well as the noble Lord, Lord Shipley, on excellent maiden speeches, and I look forward with eager anticipation to the speech by my noble friend Lord McFall of Alcluith—not least to find out where Alcluith is, which as a Scot I fear I should already know. The noble Lord, Lord McKenzie of Luton, has done the House a service in securing this debate because I firmly believe that the poorest in society should not bear the burden of rebalancing the current fiscal deficit. As a result of the Budget announced last month, that is precisely what will happen.
Today, 3.9 million children are living in poverty in the UK—that is, in a household with an income of less than 60 per cent of the median household income, which in 2008 was £404 a week. Households in poverty therefore have a net income equal to or below 60 per cent of that, which amounts to a weekly income of £244 or less. After housing costs, that figure falls to just £206 a week for a family. It should be stressed that more than half the children whose family income is less than £206 a week after housing costs live in households where at least one of the adults is in paid work, so this is not just a question of worklessness. In this context, the changes to tax credits and other in-work benefits for the low paid are particularly important.
A number of changes in the Budget will result in a reduction in the income of the poorest—for instance, changing the basis for calculating the uprating of benefits from the retail prices index to the consumer prices index. The main difference between them is that the CPI does not include housing costs. The effect of the change will be a 1 to 2 per cent reduction in the benefits paid to families. Housing benefit—a subject to which I shall return—will also be affected by the change in the basis for uprating. The increase in the rate of VAT to 20 per cent will have a disproportionately large impact on the poorest families, because the poorest 10 per cent spend 14 per cent of their disposable income on VAT compared to the most affluent 10 per cent, who spend just 5 per cent of their income on VAT.
The Budget did include measures aimed at helping low-income families. The increase in child tax credit is welcome, although if a family also receives housing benefit, that allocation will be cut in recognition of the increased family income from the child tax credit. This occurs because the child tax credit is taken into account when the household income is calculated. For the housing benefit to remain unchanged by the increase in child tax credit, the regulations would need to change so there was a disregard for child tax credit, and I will be interested if the Minister will give the House the benefit of his views on this point.
This Budget is deeply regressive. People in the bottom half of the population are heavy users of services and benefits and there are more children and elderly people in the bottom half of the population than the top half. Public service cuts therefore fall disproportionately on the bottom half. The problem is not just that cuts risk tipping us back into recession and will hit the worst-off hardest. It is that by taking demand out of the economy and undermining a fragile recovery in the process, the coalition could actually increase the size of the deficit as has happened in Greece and Ireland, as we know all too well. The extent of these measures amounts to a Budget of ideological choice, not of necessity. There was nothing unavoidable about adding £40 billion to the previous Government's already swingeing plans to halve the deficit in four years. The effect of this Budget will be to shrink the state below 40 per cent, which even the noble Baroness, Lady Thatcher, never attempted during her time as Prime Minister.
I say to those on the Liberal Democrat Benches that I wonder what those old Liberal heroes Beveridge and Keynes would make of such draconian deficit cutting or of £11 billion of welfare cuts. Most of that comes from slicing 2 per cent off every benefit by cutting inflation indexing. You simply cannot cut a quarter of social care for the old, children's services or child protection without doing dangerous harm to millions of vulnerable people. To take only 23 per cent from taxes with 77 per cent in cuts means that the pain will fall on the poorest people in the poorest regions most dependent on public spending.
The coalition has opted for cuts far beyond anything the markets expected or demanded and the reasoning can only be ideological. The Budget's key objective—reducing the deficit—is not premised on economic logic. You do not require a degree in economics to understand that cutting spending and raising taxes reduces demand—someone who has just been made redundant will not be spending much—and could choke off recovery before it has begun. Indeed, the Chancellor is ignoring the cautionary voice from his own recent creation, the Office for Budget Responsibility, which has revised down its growth forecast for the next year by 0.3 per cent—£5 billion—as a direct result of the Budget, so even his own experts believe that the Budget will have an immediate, negative effect on growth. Both Barclays Wealth and Ernst & Young—not organisations that I am normally given to quoting—have produced analyses suggesting that the Government are, in the latter's words,
“underestimating the impact of this significant fiscal tightening".
The International Monetary Fund is equally unimpressed, because it has cut its growth forecast for the UK both this year and next in the light of this austerity Budget. For all Mr Osborne's protestations that the measures in his Budget were “unavoidable”, there is every reason to believe that cutting fast and deep could, and indeed should, have been avoided.
Many charities have warned that drastic changes to the housing benefit system outlined in the Budget will lead to overcrowded homes and a surge in evictions. They fear the changes will make central London unaffordable to anyone on a low income, ghettoising the city by pushing the poor to the outer boroughs. I welcomed the contribution by the noble Lord, Lord Best, who spoke very knowledgably on this subject and in greater depth than I can. As he said, the changes will see housing benefit capped at £400 from next April. Thousands of people renting from private landlords in London and other high-rent cities will find that that will no longer cover their weekly rent, forcing them to move to a cheaper area. From April 2013, people who have been on jobseeker’s allowance for 12 months or more will also see a 10 per cent reduction in their housing benefit. The coalition has said that it wants to make sure that when you work you are better off. That is not unreasonable, but the suggestion that the system is being changed to encourage people to go into work is based on a popular misconception about those who claim housing benefit: only one in eight people receiving that benefit is unemployed. The changes will be very serious for London and other inner-city areas and could result in thousands of people becoming homeless. The policy would force people on low incomes out of central London. In fact, it could replicate what has become of Paris, where the well-off have annexed the city centre, while the poor form a ring around the outskirts.
As the noble Earl, Lord Clancarty, said, the situation in London is currently so grave that the Evening Standard has begun an appeal, which it has named the Dispossessed Fund, to help those who it has identified as being in distress. Yesterday's edition highlighted a cleaner working at the Treasury, who the newspaper claimed was paid so little that her children have to live on soup. The homelessness charity Shelter estimates that some people currently claiming housing benefit could lose up to 40 per cent of their total rent, which will force people out of their accommodation with nowhere for them to go. Shelter expects to see debt and evictions rise as a result of this change. Any savings to the Government would be more than offset by the cost of rehousing families unable to afford their rent. The coalition needs to answer the question: where are people on low incomes meant to live? Even the Mayor of London has forsaken party loyalty to condemn the proposed changes to housing benefit as draconian, and not all Lib Dem MPs are prepared to forsake their principles. Simon Hughes has urged the coalition to slow down changes to housing benefit, saying:
“We need a system that is flexible and ties in to areas of different need”.
Indeed we do, and that begs the question as to how long Liberal Democrats will adhere to the Tory agenda when the Budget has shown that it is the poor who will be hit hardest. During the general election, the Liberal Democrats actively campaigned against much of what is now being implemented. Even excluding the effect of wider spending and benefit cuts, the squeeze on the worst-off 10th of the population will, according to the Institute for Fiscal Studies, be five times the impact on the richest 10 per cent by 2015.
The Chancellor insisted that his Budget was progressive, fair and unavoidable. In fact, it was the precise opposite on all counts. Raising the regressive value added tax while cutting housing, disability and child benefits contrasts starkly with plans to cut corporation tax year after year and let banks off with a levy that is inconsequential when compared to the huge amounts they pay out in bonuses. Even the boost to child tax credit will be more than offset by the housing benefit squeeze and the ending of maternity and pregnancy grants, along with other benefits targeted at women and children.
Lib Dem voters backed a party which stood against early cutbacks, in support of a ratio of cuts to tax increases of 2.5:1 and fiercely opposed the threat of what it called a “Tory tax bombshell” of increased VAT. Now, sadly, I have to say that it has binned all three commitments in the name of coalition compromise and signed up to a Budget which must be alien to much of what it has hitherto stood for.
This unnecessary and dangerous Budget is very likely to push the economy back into recession, and the big worry is that it will lead to what the Nobel economist Paul Krugman has called the long depression: zero growth and high unemployment for years. There are no prizes for guessing who that will hit the hardest.
Lord McFall of Alcluith
My Lords, it is a deep privilege for me to be a Member of this House, and particularly to be making my maiden speech today. Since my introduction, I have found nothing but a welcoming atmosphere and encouragement from all sides of the House, and I would like to put on the record my thanks to all the staff of the House—the Doorkeepers, the Library staff, the catering staff and others—for their care and attention both of me and my family, especially on the day of my introduction. I would also like to thank my sponsors, my noble friends Lord Graham of Edmonton and Lord Myners. My noble friend Lord Graham is an old friend. He entertained my children over 30 years ago and he met them again. I think they were better able to understand his humour as a result of the passage of time.
I have long admired the intellectual rigour and broad expert nature of debates in this House. My interest goes back to the days when I was an opposition Front-Bench spokesman in the other place. I made it a feature to read the Lords’ Hansard to better perform and educate me in my role. I hope that it did that, and I am now delighted to have a ringside seat at these debates.
I was privileged to represent West Dunbartonshire for 23 years, and I was born and bred in Dumbarton, as was my wife, Joan. The noble Lord, Lord Watson, asked where Alcluith is. It is the Gaelic name for Dumbarton and goes back to the dark ages of the fifth century. I was unable to obtain the name “Dumbarton”, so Alcluith was the name I focused on. Alcluith literally means “the rock on the Clyde”. The rock refers to Dumbarton castle, which is associated with historical figures such as Robert the Bruce and the infant Mary, Queen of Scots before she was taken to France for her safety. Merlin is supposed to have stayed there, too. The earliest reference to Alcluith is recorded in a letter from St Patrick to King Ceretic of Alcluith in which he complains about the raids the Britons were making on his Irish converts. I can tell noble Lords that complaints and warring factions are still a feature of my area, and over the years I have been asked to mediate in them, but that is part of a healthy society. The primary school I attended was named St Patrick’s, as was my secondary school. In fact, my first teaching post was in St Patrick’s secondary school. As one of my friends said the other day, “John, if Alcluith is good enough for St Patrick, then it’s good enough for you”. I take the point well.
The other part of the name refers to the River Clyde, which has dominated my area because it has been a site of shipbuilding dating back to the days of Robert the Bruce when he set up shipbuilding on the River Leven and the River Clyde. The area has an historic industrial heritage, with shipyards lining the Clyde. As far back as 1963, there were 33 shipyards on the Clyde. In my area, we had the mooring where the “Cutty Sark” was built, and we had the “QE2”, for which I was privileged to represent the Clydebank area, and the former John Brown’s shipyard. In my home town of Dumbarton we had Denny’s shipyard, which closed in the 1960s but which was able to develop the hovercraft. So there is a proud shipbuilding history in the area, and I have been privileged to chair two regeneration companies in my constituency, Clydebank Re-built and the Strathleven Regeneration Company, both of which are dealing with the consequences of our industrial heritage and hoping to formulate a new age. I have included the Strathleven Regeneration Company in my interests in this House, and I also declare an interest, which is recorded in the register of interests, in a company that has aspirations to be a bank.
I come from having nine wonderfully privileged years chairing the Treasury Select Committee in the other place. Latterly, times were hugely uncertain and worrying. They have been challenging for our country and its citizens. One of the achievements of which I am most proud is that in the teeth of very divisive debate between the political parties as to the source and responsibility for the crisis, the Treasury committee kept its focus and delivered unanimous reports throughout the period which, in the words of the then Chancellor and the Governor of the Bank of England, pioneered the way forward for restructuring the financial sector. That resulted in reform in the UK that has not been seen in other major countries.
This week, the Treasury committee came out with its report on the June 2010 Budget. It is pertinent to the debate today because it warns of the increasing risk that Britain will slide back into recession, and of the coming austerity hurting the poor disproportionately. Robert Chote, the distinguished head of the Institute for Fiscal Studies, gave evidence to the committee that the Budget is regressive, contradicting what the Treasury said, which was that it was progressive. Robert Chote pointed out that when you dig deeper, you find that the Chancellor’s statements have been focused only on the next two years, to 2012-13, but beyond that, experts say that the cuts in housing benefit, disability living allowance and the in-year changes to tax credits will hit the poorer half of households harder than they will the rich. The Chancellor is on record as saying that the Budget will not increase poverty according to measured child poverty targets over the next two years, but given that many welfare cuts will not take effect until after 2012-13, one can understand the concerns of experts and groups such as Save the Children and the Child Poverty Action Group about the future, particularly for poorer people.
The Chancellor has made promises that have to be set against the provisions in the Child Poverty Act 2010, which will guide him. The Government have signed up to this Act and, as previous speakers in the debate have said, it makes meeting the 2020 target of eradicating child poverty legally binding. The 2010 Act has four targets. An assurance has been given by the Chancellor on what he declares is “measured child poverty”, but that is limited to a two-year timeframe. No assurances have been given on the other three targets set out in the Act. If this Budget is indeed to be worthy of the description “progressive”, it demands detailed and continuous scrutiny in order that the Government’s ambitious rhetoric and their solemn legislative undertakings serve the interests of all, but especially the poorer and most needy members of our society.
Lord Touhig
My Lords, it is a great pleasure to follow my noble friend Lord McFall. I welcome him to your Lordships’ House and congratulate him on his maiden speech. I extend my congratulations to my noble friends Lord Boateng and Lady Donaghy, and to the noble Lord, Lord Shipley, on their excellent contributions today. My noble friend Lord McFall and I have known each other for 20 years, and in that time I have come to hold him in very high regard indeed. We have seen from his contribution to this debate why he was such a successful chairman of the Treasury Select Committee in the other place. With great skill he held the Government to account while at the same time preserving the unity of his committee. He was relentless in conducting his inquiries into the banking crisis, and many a banker did not look forward to appearing before him when he sought to hold them to account, exposing their greed and ineptitude which brought the world economy to the brink of collapse. My noble friend served in the Whips’ Office for some time, and in the Northern Ireland Office. Many in the Province will remember him for his compassion and his cool head on the day of the Omagh bombing, when he was the only Minister in Northern Ireland.
Yet my noble friend has one shortcoming, and I hope he will forgive me for revealing it. It is that he and good timekeeping are not close companions; indeed, some would say they are total strangers. His extraordinary work rate, running from one engagement to another, is the reason for it. I well remember a few years ago arranging to meet him and other friends for dinner. We all arrived at the appointed restaurant at the appointed time and waited and waited and waited for my noble friend. Eventually, after half an hour of putting off an eager waiter who wanted to take our order, we surrendered our table to other diners who were very hungry indeed. My noble friend did not arrive for a further half an hour and we had to queue to get our table back. I regret to say that I am not sure that his timekeeping has greatly improved, but I have no doubt that we will welcome his further contributions in this House. As our debates are carefully timetabled, I am sure that that will do much to improve his timekeeping.
The two poorest and most disadvantaged groups in our society are at the extreme end of the age spectrum: children and pensioners. During the past 12 years, a Labour Government did much to redress this with the record increase in child benefit, family tax credits and the child trust fund, all aimed at helping families with young children. We also saw the introduction of pension credits, free bus travel free television licences, all improving the quality of life of pensioners. But these significant advances may now be reversed by what Paul Krugman has called “ideologically fixed deficit hawks”. Only on Monday, we saw this Conservative/Liberal Democrat Government begin their assault on child trust funds. We know that they will freeze child benefit and, with massive cuts in public services predicted, every family with children and every pensioner needs to be concerned about the future.
The Conservative/Liberal Democrat Budget of a few weeks ago heralds a major attack on public services which support the most disadvantaged in Britain—public services that we have built up over years and make us a civilised society. What this Government have forgotten is that public service is labour intensive. We cannot sack police officers and put CCTV cameras on every street corner and call it policing; we cannot sack teachers and sit every child in front of a computer screen and call it teaching; and we cannot sack social workers, give every pensioner a microwave and call it home care. I have no doubt that we on these Labour Benches will need to be vigilant in these coming months if we are to defend public services on which so many of our vulnerable citizens depend and which the two parties opposite seem determined to put to the sword.
I shall confine the rest of my remarks to the plight of disabled people in general and those with autism in particular. Research conducted by Leonard Cheshire Disability found that 30 per cent of disabled people live below the poverty line. That is one in three and a terrible indictment of Britain in the 21st century. The National Autistic Society says that the lack of support that people with autism receive means that they and their families experience extreme financial difficulties. Some people with autism are able to live independent and fulfilling lives with very little support, but we all know that others will need support throughout their lives. The vast majority of people with autism want to work, and we need to do more to help them to do that. But as a dear friend of mine, a now retired GP, Dr Dipak Ray, said to me only last week: “Suddenly, creating jobs is out; inflicting pain is in”. That seems to be the message that we have had from this Budget.
Only 15 per cent of adults with autism are in full employment. Some 66 per cent of adults with autism are not in any kind of employment. Almost 80 per cent of those are on incapacity benefit. Six out of 10 adults with autism survive only with family and parental financial support. Caring for a child with autism is a full-time job. According to the National Autistic Society, 68 per cent of carers it surveyed said that their caring responsibilities exceeded 70 hours a week. The same survey revealed that only 41 per cent of carers had jobs, while almost 70 per cent gave up work to carry out their caring responsibilities.
More than half of families with disabled children borrowed money from family and friends to pay for essentials. According to a recent Contact a Family survey, one in four families is going without heating in their homes, one in seven is going without food and nine out of 10 said that financial worries are having a severe impact on family life.
I believe that noble Lords on all sides of the House will find these circumstances unacceptable and will want to challenge any Government who plan to introduce cuts in public services for the disabled. Disabled people, especially those with autism and their families, will be forced into greater poverty and financial dependence on family and friends if we do not take steps to protect them.
The Prime Minister said recently that the third sector was really the first sector. He was right in that we esteem that sector, but I hope that his remarks were not code for plans to offload the responsibilities of the state on the voluntary sector. The voluntary sector in Britain makes a huge contribution to the quality of life of millions of our citizens. Many voluntary groups are hard pressed. With massive public spending cuts in the offing, this will cascade into the voluntary sector.
The government programme states that the main burden of the deficit reduction will be borne by reduced spending rather than increased taxes. It also states that people needing care deserve to be treated with respect and dignity. I hope that the Government recognise that, without funding for services for the disabled, there can be no respect and certainly no dignity.
Baroness Greengross
My Lords, the Government have made a strong commitment to fairness, but there are some grave concerns about certain groups among us who were already suffering from poverty and whose situation will be worsened following the Budget announcement. Careful attention needs to be paid to those people who are most affected.
In 2007-08, 13.5 million people in this country were living in households below the low-income threshold of 60 per cent or less of the average income. This is about a fifth of the population and an increase of 1.5 million compared with three years previously. We know that the UK has a higher proportion of its population in relative low income than most other EU countries. Of the 27 EU countries, only four have a higher rate than the United Kingdom.
We know that health inequalities associated with socio-economic status are pervasive and can be found in all aspects of health, from infant death to the risk of mental ill health. We also know that life expectancy is closely related to this. The difference in life expectancy between the leafy suburbs of the south-east and the inner-city deprived areas of the far north can be as much as 17 years. This is a death sentence and is totally unacceptable.
I turn to disabled people, who were movingly described by the noble Lord, Lord Touhig. About a third of working-age disabled adults live in low-income households, which is twice the rate of that for non-disabled adults. The gap between the two is markedly higher than a decade ago.
In the Budget, many entitlements were scaled back. The Work and Pensions Secretary admitted that the decision of the Cabinet to scrap free school meals for working parents’ children and reduce the number of people who get tax credits made his own long-term goal to alleviate unacceptable levels of poverty and social exclusion difficult.
An issue which particularly affects older people—although not exclusively—is that of excess winter deaths. In 2008-09 the number of winter deaths increased by 36,700 compared with the average for the non-winter period—a 49 per cent increase compared with the number in the previous winter of 2007-08. The elderly population experiences the greatest increase in deaths each winter. In 2008-09 there were 29,400 more deaths among people aged 75 and over as compared with those in the non-winter period. In contrast there 7,300 among those under the age of 75. That is a terrible differential.
On fuel poverty, in 2007, 2.8 million households in England alone were classified as being in fuel poverty. In 2004, 5.9 per cent of households were considered to be fuel poor, but that rose to 7.2 per cent in 2005; 11.5 per cent in 2006; and it went up to 13.2 per cent in 2007. Fuel poverty is increasing mostly because of the continued significant increases in fuel prices, and VAT increases will be passed on directly to the consumer, making the situation of people suffering fuel poverty even worse.
The Fuel Poverty Advisory Group has estimated that 4.6 million homes across England could now be in fuel poverty. It added that investment in energy infrastructure and measures to reduce greenhouse gases were essential but that the cost of these was largely passed on to consumers and that bills could soar by a further 50 per cent. Both overall and among those in low-income, single-person households, many people are more likely to be in fuel poverty than other household types by 2020.
On the issue of decent homes, in 2008 about 7.4 million homes were described as non-decent—that is one-third of our homes. Overall, homes in the social sector were in a better condition than those in the private sector, where most poor older people live; 27 per cent are non-decent compared to 34 per cent previously. For vulnerable groups, 24 per cent of private homes had at least one category 1 hazard; 13 per cent in social rented homes; and 31 per cent in private rented homes. The National Audit Office examination of the decent homes programme concluded that while good progress has been made there are risks in terms of completing the target to eliminate non-decent social rented homes—originally by 2010—and of a new build-up of a repairs backlog if a new programme is not put into place. Such a new programme seems remote in the current circumstances.
By capping housing benefit nationally, the Budget creates real issues in London and the south-east particularly. That, together with the regressive nature of VAT, means that the Chancellor has got his work cut out to prove that he is putting fairness first, particularly in the longer term. I hope the Government will consider these issues.
Lord Haskel
My Lords, I am not sure of the collective noun for maiden speeches—an avalanche, a torrent? Whatever it is, we have had it today and I congratulate all noble Lords who have made maiden speeches. They have demonstrated the genuine concern in your Lordships’ House for the poor and the vulnerable. I hope that the Government will take note of their concern that such people should not be exploited but should be given a fair deal.
The coalition Government are in a hurry. They are hurrying to change the nature of education, they are hurrying to have fewer public services delivered by the state and they are hurrying to change the economy. However, when you hurry, one thing stays the same: the law of unintended consequences remains alive, well and flourishing. As my noble friend indicated in his authoritative speech moving the Motion, it is the poor who are the victims.
Let me give some examples arising from the increase in VAT—a rise that has caused concern to many noble Lords. Some of the examples that I consider important have been mentioned by other noble Lords. Was it really the Government’s intention to take away half the surplus of the housing associations? Many speakers are concerned about the effect of the Budget on affordable housing but, according to Mr David Montague, chief executive of the London & Quadrant Housing Trust, the increase in VAT will cost the housing association sector £125 million, which is half its surplus. The Minister knows that it is the poorer households that are increasingly concentrated in social housing. If you want to eliminate poverty and enhance life chances, social housing is essential. Amid all their talk of fairness, did the Government in their Budget really want to make life more difficult for the housing associations? The noble Lord, Lord Best, reminded us that housing benefit is a third of the income of the housing associations, so their work will be doubly more difficult—more VAT and less housing benefit. Was this really the Government’s intention?
Was it really the Government’s intention to victimise poor women more than men? As my noble friend Lord McKenzie told us, women have lower incomes, so the VAT increase will hit them harder. This effect on poorer women is supported by a recent paper from the House of Commons Library that shows that the extra VAT raised will come disproportionately from women. In addition, because of their lower incomes and their greater caring responsibilities, women are bigger users of public services, both for themselves and for those for whom they care. They will have to fill the gaps left. Do the Government really intend to victimise women more than men—or is this the law of unintended consequences at work?
Was it really the Government’s intention to penalise charities? According to the Charities Aid Foundation, charities will pay £140 million a year more in tax. Therefore, charities are going to be hit in two ways: they will have to pay more VAT and their income will be reduced because of the hard times. Yet, as the noble Earl, Lord Clancarty, reminded us, the Government and society look to the charities to help the poor, the unfortunate and those who cannot cope. Indeed, a third of their income comes from the Government because the Government look to charities to provide services that many of us consider essential. I cannot believe that it was the intention of the Budget to penalise them—or, again, is this the law of unintended consequences at work?
The only way to deal with the law of unintended consequences is to legislate, not through dogma or political belief, for what works—for what gives the intended consequence. Like other noble Lords who have spoken, this forces me to the conclusion that this Budget is more driven by politics and less driven by the need to deal with our deficit. Perhaps there are no speakers from the Conservative Back Benches because it is impossible to defend ideology triumphing over common sense. If it were otherwise, the housing associations, women and charities would be compensated with increased benefits for the rise in VAT. Surely that is right, because VAT is a tax that does not take into account your ability to pay. That is why it is regressive.
On average, the rise in VAT will cost every household £500 per year, irrespective of ability to pay. That is why it hits the poor hardest. Before the election, the Liberal Democrats often spoke of raising a similar amount through taxing unearned income or through carbon taxes. Since the election, they have been silent. I join my noble friend Lord Watson in asking whether the Liberal Democrats have deserted the poor by having to defend a Conservative Budget—or is this another unintended consequence?
The stated aim of the Budget was to protect the vulnerable. My noble friend Lord McFall told us that that was shown to be misleading by the IFS. It was shown the following day when the IFS helpfully disaggregated George Osborne’s June Budget alongside Alistair Darling’s March Budget. They were shown separately and are dramatically different. The bias towards those on lower incomes that characterised the Labour years has more or less been inverted in the first coalition Budget.
This unfairness to the poor is further emphasised by the inconsistencies in the Budget architecture, as Chris Wales pointed out in a recent Smith Institute seminar. The Chancellor won praise for his commitment to the triple lock for uprating the state pension, but people on welfare benefits live in the same world as pensioners, often with higher demands placed on them and even less to live on. Unless the Government believe that they are all scroungers living off the state when they should be working, it would be logical to assume that, in the interests of fairness, the poor on benefits should have the same uprating guarantees. Is that unintended neglect or just plain right-wing politics?
Of course, other aspects of the Budget will hit the poor unfairly and other noble Lords have mentioned them. What concerns many of us is the gigantic gamble that the Government are taking with people’s jobs and livelihoods. The Government are convinced that we are spending too much on the workless and at the same time that work has to be transferred from the public to the private sector. It is not rocket science to identify some of the unintended consequences of that on poor people’s jobs. It is a gamble, because there are so many uncertainties. Business will not invest without demand, yet the economy is being starved of the money necessary to create the demand.
Also, a high proportion of people depend on benefits because of low pay. One-third of households have state benefits. If, as we are told, there is to be a high number of unemployed people, pay will stay low. Will that low pay be subsidised by tax credits? If so, jobs will be transferred to the private sector to save money, but they will be subsidised with public money. That seems curious economics to me. Surely if the jobs are going to the private sector to reduce the burden on the taxpayer, it makes sense for private sector employees to get a living wage and not the minimum wage mentioned by the noble Baroness, Lady Donaghy, which has to be subsidised by the taxpayer. Are these more unintended consequences or just crazy economics?
Surely the right question to ask is why people are in low-paid jobs and what can be done about it. I agree with Iain Duncan Smith that you have to make sure that there is enough financial gain for people to benefit from work. You have to support poor people in work for a short time until they get to work longer hours or are promoted. Do the Government have a plan B? Is there a plan to delay the rise in VAT until the cuts in public sector jobs are in balance with the rise in private sector jobs? Is there a plan to think through all the unintended consequences? Is there a plan to protect the poor as things go wrong?
Lord Knight of Weymouth
My Lords, we are grateful to my noble friend Lord McKenzie of Luton for instigating this debate, the subject of which brought so many of us into politics and public life in the first place. We have heard some excellent contributions, particularly the maiden speeches. Like my noble friend Lord Haskel, I am not sure what the collective noun is, but my noble friend Lord Boateng, as ever, gave us an outstanding oration and an uncontroversial appetiser for what I am sure will be substantial contributions to come. I was particularly pleased that he reminded us of the importance of giving a voice in your Lordships' House to looked-after children and other children at risk, for whom he has been such a great advocate throughout his career.
The noble Baroness, Lady Donaghy, treated us to a taste of her extraordinary range of experience and reminded us of the threat of joblessness leading to increased poverty—something that I will return to later. It was great to hear once again from your Lordships’ equivalent of a retread with the return of the noble Earl, Lord Clancarty. He made a passionate plea for attention to the dangers of stigma being attached to those dependent on benefits. Like him, I had an early career in the arts on the enterprise allowance scheme and I look forward to the Minister's answers to his questions on that.
The noble Lord, Lord Shipley, gave us an insight into his experience of tackling child poverty in Newcastle, particularly on the council there, especially reminding us of the links to health and education inequalities. As a former Schools Minister, I was particularly struck by his description of the excellent work done on family linking with schools. I was delighted to be here for the final maiden speech of the day, from the noble Lord, Lord McFall of Alcluith, which he explained meant “the rock on the Clyde”. For me, the noble Lord was the rock during my time in the other place, chairing the Treasury Committee and always leading off the Back-Bench contributions to the Budget debates as the measures flowed out from this place to the country. We look forward to more contributions from all these excellent new Members of your Lordships' House.
We have not yet heard from the Conservative Benches, but I am sure that it would be unkind to suggest that they are contracting out concerns for poverty to their coalition partners. In the lead-up to the general election, in response to questions about fairness from the Child Poverty Action Group, the Deputy Prime Minister, as he now is, said:
“The Liberal Democrats want to make sure that the burden of controlling spending falls on those who can afford it… so that closing the gap doesn’t bear down on those who already have too little”.
I welcome the coalition’s commitment to continuing the work undertaken by my party to eradicate child poverty by 2020 but, taking on board the findings of numerous non-governmental studies, I believe that this Government’s economic policy risks not only delaying that target but plunging further families into poverty. Cuts in allowances, the VAT hike, decreased incomes and increased outgoings—the right honourable Chancellor is going to hit the poorest hardest. As my noble friend Lord McKenzie said, it was his choice. As the noble Baroness, Lady Jones of Whitchurch, reminded us, that was the choice made in the 1930s, when the then coalition Government, encouraged by business, pursued austerity and then took us into the great depression. From that situation, Keynes developed his great economic theories, now abandoned by the Liberal Democrats. As the noble Lord, Lord Touhig, reminded us in the context of disabled children, if we want to raise children out of poverty, we need to raise their household incomes, and this Budget promises anything but. While the Chancellor may claim that his cuts are not expected to raise measured child poverty, there is little of any comfort in it to those families already below the poverty line. I share the fears of Save the Children that, as a result of this Government's regressive approach to tackling the deficit,
“those families living in poverty will have less income and fewer or less effective services to mitigate the worst affects of poverty”.
Despite the welcome, if menial, increase in personal tax allowance and child tax credits, the Work and Pensions Secretary’s mangling of the benefits system and the axe-wielding of the Chancellor will undoubtedly cost lower-income families more than they can hope to gain. As the noble Lord, Lord Watson, reminded us, more than half of those 3.9 million children whose families live in poverty come from households where at least one of the adults is in paid work. For these families, child tax credits, which many noble Lords have spoken about, are vital. Yet many will see that lifeline disappear in the immediate future. A family with one child on as little as £15,000 will see their tax credits fall next year. The following year, a one-child family earning just £30,000 will lose all their tax credit. Meanwhile, the promise of a £210 increase in that benefit for those eligible over the next two years is, of course, when isolated, a great step forward—but not if that increase ultimately leaves lower-income families worse off than they were previously. Failure to correspondingly amend the way in which housing benefits are calculated will have exactly that effect. At present, the child tax credit is not disregarded in calculations for housing benefits. Resultantly, the coalition's proposed rise in child tax credits, increasing the family income, will lead to cuts in that family's housing benefits.
Other conflicting and confusing measures have been discussed by noble Lords, including the proposed 10 per cent cut to housing benefit for those who have been on jobseeker’s allowance for 12 months or more, which the Child Poverty Action Group has called a stealth cut on JSA. The Chartered Institute of Housing has calculated that the cumulative outcome of the coalition's proposals means that by 2020 every tenant's housing benefit will be too low to cover their rent. The net outcome of this is clear: debt, overcrowding and homelessness. There are already 1 million children living in overcrowded households. Such living conditions affect children’s mental and physical health, their education and, ultimately, their life chances. As we have heard from speakers such as the noble Lord, Lord Best, reductions, restrictions and caps on the housing benefit that families can claim will force some of them to move, often into accommodation inappropriate to their needs. In addition, that might unnecessarily fracture the family unit and leave families out of reach of the services that they rely on. So much for being the party of the family. The Child Poverty Action Group warns that:
“There may be, in effect, an expulsion of low income families from some communities and a tendency for greater ghettoisation of poverty where there are concentrations of substandard housing stock”.
The coalition could go some way towards remedying this simply by altering the status of child tax credits so that they were disregarded in benefit calculations. Furthermore, the proposed cuts in public services present a severe indictment against the fairness of the emergency Budget.
Poorer households are higher users of public services. Thus, cuts to these services disproportionately hit lower-income families compared with those that are more affluent, owing to the larger contributions that they make to such a family’s income. One study projects that public spending cuts will be equivalent to 20.5 per cent of the poorest 10th of households' regular income, but equivalent to only 1.6 per cent of the richest 10th. These measures reverse any positive impact that direct taxation or government-provided subsidies and services might have for the poorest in society.
As my noble friend Lord Haskel has just argued so forcefully, the unfairness in the Budget manifests itself most significantly in the VAT rise. This will, as Save the Children has identified, simply widen inequalities and entrench existing unfairness. Not only does a rise in VAT, so nobly campaigned against by the Liberal Democrats at the election, risk economic recovery at such a fragile time but it disproportionately hits the pockets of low-income families. The VAT rise impacts on the entire population, regardless of earnings or income level. In that respect, it does what the Chancellor says it should—we all share in the pain.
There are exemptions, of course, and it is argued that these equalise such measures, assuming that lower-income families spend the majority of their income on exempted items like food, children’s clothing and household bills. But do poorer people not need beds to sleep in, clean clothes to wear or hot food in their stomachs? There are no exemptions on furniture, toiletries or household appliances like cookers and washing machines. Increasing VAT simply makes these items even more difficult to afford, making it harder for low-income families to stretch their budgets even further. Simply because the Budget does not discriminate, that does not make it non-discriminatory. These rising costs are likely to increase the number of households that fall below the poverty line.
There is much more to say but I do not want to delay your Lordships. The noble Baroness, Lady Greengross, reminded us of the health consequences of the Budget, especially for the elderly. On Tuesday I set out some of my concerns about unemployment rising due to cutting too fast and due to cutting employment programmes such as the Future Jobs Fund and the six-month allowance. As the noble Lord, Lord Bilimoria, said, work is the best route out of poverty, but the Government are pulling up that ladder.
Similarly, the free-market schools policy and allowing outstanding schools to be academies risks allowing the best schools to advance at the expense of the poorest, widening the gap and making it harder for poorer families to use education as a route out of poverty—as, again, the noble Lord, Lord Bilimoria, said. Mention has been made of ending free school meals and breakfast clubs, both fundamental to alleviating poverty. I will just argue with the noble Lord about the Labour Government’s record on schools; to take reading as an example, we ended a 30-year standstill in improvements in reading quality during the course of the previous Government with the introduction of the literacy hour.
Because of this Budget, the founder of the Child Poverty Action Group, Peter Townsend, warns that we risk perpetuating the exclusion of already impoverished children from the,
“ordinary living patterns, customs and activities”,
of average families. Accordingly, the Budget elevates the risk of negative life outcomes. These measures condemn to poverty those kids from lower-income households—families looking not for a handout but for a foot up.
One of the key measures of the success of this Government and their Budget will be how they tackle poverty. Like so many others, I am worried that they will fail miserably.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I join the noble Lord, Lord Knight, and others in congratulating those noble Lords who have made maiden speeches today. I enjoyed all of them. The noble Lord, Lord Boateng, pointed out the importance of young people at risk and in care, with all the passion that we would have expected from him. The noble Baroness, Lady Donaghy, reminded us that poverty is a complex set of issues. My noble friend Lord Shipley’s focus was on reducing the number of children in poverty and trying to reinforce the cycle of aspiration. Finally but certainly not least, the noble Lord, Lord McFall, with his deserved reputation for calling the Government to account, gave us, and me in particular, fair warning of continuous scrutiny in the years to come. I await that with some trepidation.
I thank all noble Lords who have taken part in this debate. I thank the noble Lord, Lord McKenzie, in particular for giving us the opportunity to tackle the issue of poverty in Britain today. It is an issue close to my heart, and I know that that is shared widely in this Chamber.
The issue, as I have mentioned, is complex, so it is worth putting the impact of the Budget in context. Many of the measures in the emergency Budget were taken in the face of a potential eurozone economic crisis. This was a legacy that we inherited from the previous Administration, with borrowing forecast at a stunning £149 billion this year, the second largest in Europe. The Budget simply had to tackle borrowing and get that deficit down.
We are now on track to cut debt. The figure is £116 billion for next year and £89 billion for the year after. We will get the structural current deficit into balance by 2015-16, when borrowing will be down to £20 billion. Undoubtedly, reducing the national debt to stabilise our finances and get the economy back on track left us with some extremely tough choices. Those choices were made with some key principles in mind. We wanted to align efficiency and value for money with long overdue and much needed strategic reform. We wanted to protect the vulnerable and ensure that our reforms were made with fairness and responsibility uppermost in our minds. In this context, it is worth raising something that always puzzles me and puzzled me today when the noble Lord, Lord McKenzie, excoriated the measures. The previous Administration were also planning very large cuts. They were a little smaller than the ones that we have put through but they were large nevertheless. I am always puzzled by what exactly they would be, since every single measure that we have taken is wrong. However, the Opposition would have had to take at least three-quarters of them in their own programme.
The Budget measures revolve around three key objectives: to make work pay and reinforce responsible behaviour; to reform the welfare system to make it fairer, improve targeting and reinforce conditionality; and to protect the most vulnerable while tackling the deficit. As I said, underpinning the approach is a commitment to fairness. That is why we increased the personal allowance to boost rewards for work for low and middle-income people. As a result, around 23 million basic rate taxpayers will pay up to £170 a year less in tax in 2011-12 and 880,000 people will be taken out of income tax altogether. Wherever possible we have made sure that this is a fair and progressive Budget, tackling the deficit while maintaining the right balance between taxation and spending. Even though we had to make a tough choice on VAT to avoid even greater spending cuts, VAT on such everyday essentials as food and children’s clothing remains zero-rated.
At the same time, we wanted to use the Budget to reform our welfare system and make it fit for the 21st century. My right honourable colleague Iain Duncan Smith has talked extensively about the need for radical welfare reform. I know he will be grateful for the support of the noble Lord, Lord Haskel, for that today. Iain Duncan Smith has pointed out that reform is so urgently needed because so many people are left without incentives to work and abandoned on long-term benefits. That was a point also made by the noble Baroness, Lady Donaghy. Iain Duncan Smith is looking at how we can implement reforms through a far simpler benefits system, and concentrating absolutely on the huge social and economic advantages we will gain as a society if we can move to a more dynamic system that gets this right once and for all.
The case for urgent reform is clear. The welfare budget has spiralled out of control in recent years, rising in real terms from £63 billion in 1996-97 to £87 billion in 2009-10. That includes tax credits. The true cost of our welfare system is not measured purely by the increasing burden on the taxpayer, great though that is. The price of worklessness and welfare dependency is paid by the individual, their families and their children, who get trapped in a cycle of inter-generational poverty. To change that, we need a fundamental reappraisal of the benefits system. As the noble Lord, Lord Bilimoria, said, we need to support those who genuinely need help, but we do not need to put them in a benefits trap. We have already announced our proposals for a new work programme, and in the near future we will introduce key measures to reform and simplify the benefit system to make it fit for the 21st century.
Housing benefit was mentioned by several noble Lords, particularly the noble Lords, Lord McKenzie and Lord Knight. The housing benefit reforms are an excellent example of how we have aimed to balance much needed and long overdue reform with fairness and value for money. In real terms, the cost of working- age housing benefit has jumped by £5 billion in five years, and was projected to reach £21 billion in 2014-15. In his excellent speech, the noble Lord, Lord Best, talked about the cuts in housing benefit. I emphasise that we are not talking about absolute cuts in housing benefit, even in real terms. We have put brakes on the sledge as we go down the run. All we are doing in practice is reducing the £21 billion figure by £1.8 billion. According to the projected forecast, it will still go up by £3 billion in the next four years. However, cost is not the only problem. The scale of these payments has meant that housing benefit has become a disincentive to move into work and has created distortions in the social rented market.
The figures show that 75,000 people get more than £10,000 a year in housing benefit and that some—admittedly, a small number—get more than £100,000 a year, which means that housing benefit is often unfair as some hardworking people could not hope to afford the properties available to some people on housing benefit. It is interesting to note that recent reports in the press indicate that many people agree that the system needs a major shake-up. That is why we have capped local housing allowance levels to the rate for four-bedroom properties, introduced size restrictions to the social rented sector, and changed the percentile of market rents for local housing allowance rates from 50 per cent to 30 per cent. These changes are vital and will reset the balance, making housing benefit fairer and creating reasonable incentives for people to move into work. Tomorrow we will publish the impact assessment on housing benefit so that everyone can see exactly how these reforms will work in practice. I thank the noble Lord, Lord Best, for his recommendations, which we will take back and consider.
As I said, we have had to make very tough choices in order to tackle the deficit, but at the same time our overarching concern is to protect the most vulnerable. That is why many of the measures are progressive, including tax credit reforms that target support away from the better-off and towards lower-income families by increasing the child tax credit.
I pick up the point made by the noble Baroness, Lady Jones, on the freezing of child benefit. That impact is redressed for the poorest by the move on child tax credit. The Budget package recycles £1.2 billion of savings back into child tax credit next year, and £1.84 billion in 2012-13, offering enhanced support to poorer children and families. As a result, the child element of the child tax credit will be increased by £150 next year and by £60 in 2012-13, above the level of indexation. I should also point out that the Budget package has no statistically significant impact on child poverty over the next two years.
I should add something on which I assured the House on 15 June; we are committed to our goal of eradicating child poverty by 2020, and the Prime Minister has asked Frank Field to lead a review on poverty. I hope that that addresses the concerns raised by the noble Baroness, Lady Jones, and the noble Lord, Lord McFall.
The reforms to disability living allowance rebalance our support for the most severely disabled people to ensure that their needs are better met. We remain absolutely committed to supporting those with severe disabilities so that they can live with dignity and independence in their own homes. However, costs have ballooned to £12.1 billion, with the number of claimants increasing by more than half a million in just five years. This suggests that some laxity has crept into the system, which is why we have taken the decision to introduce a new DLA assessment from 2013. This will ensure that the system is fair and that properly targeted support is available for those who need it.
We are applying the same principled approach to reform to benefit pensioners, too, so that older people can enjoy dignity and security in old age. The legacy that we have inherited includes 1.8 million pensioners living in poverty—nearly one in six. We aim to remedy that situation in the long term and encourage people to save responsibly for their future. That is one of our key goals for long-term reform, but we have to be fair and sensitive to the needs of those already in or nearing retirement. This is important, because while we have the levers to tackle dependency and poverty at working age and in an intelligent way, we have to recognise that tackling poverty beyond retirement age is an entirely different proposition. That is why we are doing more to protect pensioners, and why the Government have committed to restoring the earnings link with the basic state pension from April next year with a triple guarantee. This means that pensions will be raised in line with earnings, prices, or by 2.5 per cent—whichever is higher. That is a good start. In reality it is rather better, because we have paid for the unfounded 1.5 per cent clawback that the previous Government left for us when we arrived—a £300 million hole in this year’s DWP budget.
I appreciate the issue raised about using the CPI rather than the RPI, but, as has been pointed out, the CPI is the standard measure used by government and in many cases most accurately reflects the costs borne by pensioners. Let us not forget that pensioners can continue to rely on housing benefit and council tax benefit, as well as benefit from our decision to keep winter fuel payments, bus passes and TV licences. However, the Government are well aware of the need to keep driving reform to ensure that we have a simple, coherent and sustainable pension system.
I have very little time to deal with the many interesting questions asked, although I think that I have dealt with the majority. However, perhaps I may pick up the point about the economy and the pace of fiscal consolidation, which was raised by, among others, the noble Lords, Lord Haskel and Lord Watson. The fiscal challenge in the UK is, by some measures, more serious than in any other advanced economy. That is why consolidation will support recovery, underpinning private sector confidence and creating the space for business to grow. In particular, it will reduce the burden of public sector debt and the effect of interest payments, which, if they get out of hand and we lose the confidence of the markets, will tend to have a significant depressive effect. It is almost a race between those two factors.
The noble Lords, Lord McKenzie and Lord Haskel, talked about the VAT rise, saying that it was regressive. The Institute for Fiscal Studies, which has been much quoted today, has said that total expenditure is arguably a better guide to lifetime living standards, as households smooth their expenditure over their lifetime. Therefore, analysis by expenditure, rather than income level, is a better measure of the impact of the VAT increase and, on this basis at least, the VAT increase is progressive.
A number of noble Lords argued that the poorest families will bear the biggest burden. The noble Lords, Lord Watson and Lord Boateng, and the noble Baroness, Lady Jones, made that point. This is a progressive Budget, with every part of society contributing to dealing with the deficit, but the rich are paying more than the poorest. There is a handful of questions that I do not have time to deal with, but I shall of course write to noble Lords to pick up those points.
In conclusion, we live in a wealthy country, yet more than one in four working-age adults do not work, 5 million people are trapped on benefits, 1.4 million people have been receiving out-of-work benefits for nine out of the past 10 years, and a higher proportion of children—2 million of them—grow up in workless households than in almost any other country in Europe. That is why the measures that we introduced in the Budget could not just be about getting the deficit down; they also had to form an integral part of the long-term reforms that Britain needs to reinvigorate the economy and tackle poverty—not just the symptoms of poverty but the causes, too. Our welfare and pension measures, combined with our plans to support private sector job creation and reduce the impact of the proposed jobs tax, will allow this country to move forward from the recession stronger, fitter and more resilient to take on the challenges of the future.
Lord McKenzie of Luton
My Lords, it just remains for me to thank all noble Lords for contributing to today’s debate. It has been wide-ranging and informative, as one would expect from your Lordships’ House.
I add my congratulations on four marvellous maiden speeches, from my noble friends Lord Boateng, Lady Donaghy and Lord McFall of Alcluith, and from the noble Lord, Lord Shipley. The passion, knowledge and experience that went into these speeches make me feel glad that I slipped under the wire earlier when the standard was not so high.
I thank the Minister. It is a pity that we did not hear from any Conservative Back-Benchers on poverty issues. Perhaps we should take a message from that. I accept that the Minister has an interest in and is passionate about tackling poverty; I know that from our debates on the Child Poverty Bill. His assertions about protecting the most vulnerable were not particularly convincing, if I may say so. Concern about increasing work incentives on the basis of the Budget is partly about driving down the level of benefits, and fairness in housing benefits is very difficult to see from the propositions that are coming forward.
We shall clearly have the opportunity to debate these at length as the primary and secondary legislation comes forward. I am gratified by the fact that, on today’s showing, more noble Lords will participate in that endeavour. I beg leave to withdraw the Motion.