Wednesday 23rd March 2022

(2 years, 3 months ago)

Grand Committee
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Motion to Take Note
Moved by
Lord Forsyth of Drumlean Portrait Lord Forsyth of Drumlean
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That the Grand Committee takes note of the Report from the Economic Affairs Committee Universal Credit isn’t working: proposals for reform (2nd Report, Session 2019–21, HL Paper 105).

Lord Forsyth of Drumlean Portrait Lord Forsyth of Drumlean (Con)
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My Lords, I rise to introduce the Economic Affairs Committee report Universal Credit isn’t working. In the first paragraph of their response to the report, the Government say that they are

“surprised by several of the Committee’s observations with regard to Universal Credit … In particular, in contrast to the title of the report, the effectiveness of UC as a comprehensive benefits system has been admirably demonstrated in response to the pandemic.”

I pay tribute to the department for the way in which it dealt with the Covid outbreak and the speed with which it was able to put people on universal credit, but I have to say that the rest of the response from the Government shows that they are remarkably tin-eared.

In introducing the report, I begin by thanking our outstanding clerk Adrian Hitchins and our policy analyst Will Harvey for the splendid support that they gave to the committee to enable us to produce this report, which at long last has been given time to be debated. So much time has passed that I am no longer the chairman of the committee, but we have an excellent new chairman in the noble Lord, Lord Bridges, from whom I am looking forward to hearing later in the debate.

When the Government announced plans to introduce universal credit in 2010, the scale of their ambition was largely greeted with approval in Parliament and among commentators. However, support seeped away as universal credit was rolled out. The way that universal credit has been designed and implemented appears to be based around a kind of idealised claimant and it has features that are harming many of the most vulnerable people in our country. It is certainly linked to the exponential growth in food banks and it is probably also linked—although rent rises are a feature—to the dramatic increase in rent arrears. Many claimants reported to our committee that they find the system incomprehensible. Overall, it is fair to say that universal credit’s reputation has nosedived.

The Government’s response indicated that they were surprised by the title of the report, as I said. A couple of recommendations were accepted, although one of them was actually rejected and has now been accepted. Indeed, this very afternoon, the Government have been taking credit for reducing the taper for universal credit, which is a welcome measure. Nevertheless, during our inquiry, which was completed in July 2021, most witnesses thought that universal credit should not be abolished because of the severe disruption that this would cause for millions of people and thought instead that substantial reform was required in order to make it fit for purpose.

Change cannot come soon enough as far as I am concerned. The country is facing a major assault on living standards as a result of soaring inflation, tax increases, rising mortgage costs and savage fuel and energy price increases. The Chancellor’s decision to cut universal credit by £20 a week at this moment is simply indefensible. Conservatives believe in securing a safety net below which no one can fall and it is hard to see how millions of families in this country will manage in the months ahead. The conflict in Ukraine is forecast to put up energy and food prices substantially. Inflation is expected to rise to 8% this spring and perhaps even higher later in the year according to the Bank of England, which has consistently underestimated the rate of inflation and the impact of its policies of quantitative easing.

Of course, the basket of items used to calibrate CPI inflation does not begin to measure the actual inflation that many of the poorest families in the country experience. Scandalously, many of these very poor families have higher electricity charges through pre-paid meters. Benefits are due to rise by 3%, resulting in a substantial real-terms cut to income as essential bills escalate. Since our report was published, the Government have increased the work allowance and reduced the taper rate, as I have alluded to, to ensure that working universal credit claimants can keep more of their earnings. This is very welcome, especially since it supports the original purpose of universal credit to incentivise work. It still means that some of the lowest-paid people in the land are facing an effective marginal rate of tax of 55%—I note that the Chancellor has started to call the reduction of the taper rate a “tax cut” but, if it is a tax cut, it is an effective marginal rate of tax of 55%. That is 10% higher than people earning over £150,000 in taxable income. As if things were not tough enough, deductions from universal credit awards have left some claimants with an income that is substantially lower than their essential needs. Surely the DWP should be required to conduct affordability assessments before making deductions from awards.

Scandalously, universal credit is being used by the Government as a vehicle through which to recover debt. Most of this is comprised of around £6 billion of historic tax credit debt. Many people who owe this money are unaware of it. Certainly, the original receipt of an overpayment may have been outside of their control. The recovery of the money is leaving many households with an income that is well below what is needed to get by on, even before the current cost of living crisis. We called on the Government to write off historic tax credit debt that is owed by universal credit claimants. It should be treated as a sunk cost. Who really believes that this money is ever going to be repaid? Why create so much misery and anxiety among people who are extremely vulnerable in many cases?

The five-week wait for the first universal credit payment is the main cause of insecurity for claimants. Many people have nothing on which to fall back during this period, when their needs are most acute. The wait entrenches debt, increases extreme poverty and harms vulnerable groups disproportionately. The Department for Work and Pensions has introduced some measures to mitigate the most harmful effects, but these fall well short of what is needed. In the view of the committee, the DWP should introduce a non-repayable, two-week initial grant for all claimants. This would provide some security to claimants, mitigating the timing problems in relation to housing costs, and would make repayments of advances more manageable.

The way in which universal credit payments are calculated is based on a monthly assessment period and is designed to mimic the world of work. I ask the Committee: on which planet are these people living? Most people about whom we are concerned here are not used to be being paid on a monthly basis with index-linked pension plans, like the civil servants who have produced this scheme. However, it can result in substantial fluctuations in income month to month, which makes it extremely difficult for claimants to budget. This is impractical and fundamentally unfair and it should be resolved. We recommend that the DWP fixes the level of awards at the same level for three months. If claimants experience significant falls in income or disadvantageous changes in circumstances during this time, a mechanism should be introduced to enable them to have an early reassessment.

Paying awards on a monthly basis does not reflect the lived experiences of many claimants. It forces them to fit the rigid requirements of the system and causes unnecessary budget and cash-flow problems, both for those out of work and for those who are used to receiving wages more frequently. All claimants should be able to choose whether to have universal credit paid monthly or twice monthly.

Moreover, the way universal credit is paid as a single household payment should be revisited. Access to an individual income is important for maintaining balanced and equal relationships and, in more distressing cases, for reducing the risk of financial coercion and even domestic abuse. The DWP should review the option of a separate payment by default, drawing on the review carried out, I am pleased to say, in Scotland.

The conditionality requirements on claimants who can look for or prepare for work should be rebalanced. The extent of conditionality has increased significantly over recent years, too often to the detriment of claimants. Less emphasis should be placed on obligations and sanctions. Instead, there should be more support to help coach and train claimants to find jobs or to progress in their current roles.

The UK has some of the most punitive sanctions in the world, but there is very little evidence that they have a positive effect. Removing people’s main source of support for extended periods risks pushing them into extreme poverty, indebtedness and reliance on food banks. Furthermore, there is a great deal of evidence that sanctions, and the threat of sanctions, are harmful to claimants’ mental health.

We recommend that the Government publish an evaluation of the impact of conditionality and sanctions on mental health and well-being. Furthermore, we recommend that the DWP evaluates how the current length and level of sanctions facilitate positive behaviour change and how they lead to sustainable work outcomes. The DWP should also expedite its work on introducing a written warning system before the application of a sanction. Sanctions should always be a last resort.

Our report was an appeal for the Government to act now. That was in July; it is now even more important. Universal credit needs an immediate increase in funding to match the cost of living crisis, reform in its design and implementation, and improved support for claimants to find and prepare for work.

In his Mais lecture last month, the Chancellor quoted the opening paragraph of Adam Smith’s Theory of Moral Sentiments, which I am sure everyone in the Committee will have read. I will remind them of what it says:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner.”

In the difficult months ahead, may these words be his guiding light. I beg to move.

Baroness Lister of Burtersett Portrait Baroness Lister of Burtersett (Lab)
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My Lords, I congratulate the committee on a first-class report and commend its then chair for having championed some of its recommendations, even today, notably concerning the withdrawal of the £20 uplift. The departmental response was, though, depressing, with what the then chair described in a letter to the Secretary of State as “perfunctory replies” to some of its “most urgent recommendations”. Although I noted numerous “do nots” and the occasional “acknowledge” or “note” in the response, the word “accept” was notable by its virtual absence. Thus, over one and a half years on, the problems identified by the report remain and some have got worse.

I have frequently quoted the report, in particular with reference to the benefit cap, which has still not been reviewed; the two-child limit, which is dragging more and more larger families into poverty; the already referred to five-week wait, which is not solved by repayable advances, especially given the level of other debts recuperated from weekly benefit; and the implications, especially of the single household payment, for victims and survivors of domestic abuse, ignored in the Domestic Abuse Act.

I will highlight just two areas now that stem from two of the valuable sets of principles framing the report, which were ignored in the DWP’s response: that universal credit should

“provide claimants with adequate income”


“provide security and stability—income must be predictable”.

These principles, and many of the report’s criticisms, were echoed by participants in two more recent studies but were found sadly lacking in their experiences of relying on UC. One participant in the Covid realities research, to which I referred yesterday in my OQ, said that

“the title ‘social security’ is laughable. We have never felt so insecure”

and the report referred to

“chains of insecurity and uncertainty”.

Likewise, an ESRC-funded study of couples on UC, carried out by a team that included the committee’s specialist advisers, found that in particular the monthly assessment of earnings, the whole-month approach to changes of circumstances—under which circumstances on a single day decide entitlement for a whole month—and monthly payment all contributed to insecurity, instability and lack of predictability. These issues were all raised by the report, as the noble Lord said, but given short shrift in the department’s response.

With regard to adequacy, the report argues that UC should be set

“at a level that provides claimants with dignity and security”

and pointed out that the £20 uplift

“shows the original rate was not adequate”.

Well, the evidence of its inadequacy was mounting even before the cost of living crisis, but, despite that, as we have heard, claimants now face a cut of more than 4% in the real value of these inadequate benefits over the coming year. Women as the shock absorbers and managers of poverty will bear much of the brunt of this cut. As the Minister knows, I feel strongly that there has to be an additional uprating, preferably in April but failing that in October. If a second uprating requires emergency legislation, so be it; this is an emergency. Additional funds to local authorities for discretionary support, announced today, are no substitute for the security provided by weekly benefits that meet people’s needs. In the longer term, we need a proper review of the adequacy of benefits—as the report sort of calls for.

I hope that the noble Lord will excuse me if I spend the rest of my time on an issue that is not explored in the report but is highly relevant to its recommendations on support with claiming, namely migration to UC. I recently attended a meeting of the UC all-party parliamentary group, of which I am an officer, and we heard evidence about the issue of migration that made me realise that I for one had taken my eye off the ball of migration, which now threatens to hit and bruise badly many claimants. I am grateful to the Child Poverty Action Group, of which I am honorary president, for its help on this.

First, the CPAG reports growing concerns among advisers about the “lobster pot” aspect of natural migration, which means that there is no going back once a UC claim is made, even if it proves to be to the claimant’s detriment. It and other charities recently called on the DWP to allow test claims so that the many households—including, for instance, many of those with disabled children—that turn out to be worse off on UC after making a voluntary claim can return to the legacy benefits system. Alternatively, they suggest that they could be covered by the transitional protection that will be available under managed migration, now called Move to UC. Could the Minister give us the department’s response to this recommendation?

Turning to Move to UC, the process of managed migration was supposed to be based on the outcome of a three-stage pilot. This was, understandably, paused at the start of the pandemic after just eight months, during which I understand that fewer than 13 households were confirmed as having made the move to UC. The purpose of the pilot was, according to Neil Couling of the DWP, to develop a

“measured approach to roll out, ensuring the system works for everyone.”

But, instead of continuing the pilot as originally promised, the DWP now says that it has gleaned a “considerable amount of learnings”, sufficient to proceed. Those learnings have not been made public and it is hard to be confident that the department has the necessary information from such an attenuated pilot.

Proceeding without the level of testing originally envisaged, or proper reflection and scrutiny, puts claimants’ well-being at risk. As the DWP has acknowledged, those who fail to respond to an official notification about migration will have their benefits stopped, threatening increased vulnerability and possible destitution. To ensure that this will not happen, can the Minister assure us that further piloting will take place so that the DWP can design a process that we can be confident will work? Will she publish the evaluation of the pilot, such as it was, without further delay and give an assurance that the department will fulfil the commitment to publish the evaluation strategy for the pilot? Finally, can she also assure us that Parliament will have the opportunity to scrutinise the managed migration/Move to UC regulations before the cap allowing no more than 10,000 claimants to be migrated to UC is lifted?

I can understand why the department wants to get on with it after the time lost during the pandemic, but surely it is more important to get it right. I therefore support the CPAG’s call for a pause in the Move to UC programme until it has been properly piloted, the evaluation has been published and Parliament has had a chance to scrutinise the plans. Can the Minister also say when the department envisages being able to publish take-up figures for UC, because, as the report points out, the promise of increased overall generosity rests on higher take-up? This higher take-up has been promised to flow from the supposed simplification of combining most means-tested benefits into a single award. The response to the report’s recommendation on publication of take-up figures simply said that

“The Department does not publish estimates of UC take-up rates”

and implied that there were no plans to do so. Well, I hope I read that wrong and that there will be plans to do so. We need to know when that will be possible. I understand why it may not be possible now, but it has to be possible at some point.

Finally, what is the Government’s response to the principle enunciated by the committee that UC

“must … reflect the lived experience of claimants—they must be at the heart of its design and involved in devising solutions to problems”?

This is a principle that was raised in yesterday’s OQ and that the Scottish Government have taken to heart, but I have yet to see evidence that the UK Government have.

Lord Shipley Portrait Lord Shipley (LD)
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My Lords, I am very grateful for the opportunity to discuss this report from the Economic Affairs Committee. The contributions we have heard from the former chair of the committee, the noble Lord, Lord Forsyth, and the noble Baroness, Lady Lister, have explained the detail of what has actually gone wrong with the universal credit system.

First, I am very concerned that the report was issued in July 2020 and that we are discussing it in this Chamber only in March 2022. Given that the Government’s formal response was sent 18 months ago, it is very hard to see what has held up such a debate—and, inevitably, some facts and figures have changed. When the Minister replies, perhaps she might just explain why we have had to wait this extraordinary length of time to have a debate on this absolutely vital matter for so many.

However, we should be very grateful to the noble Lord, Lord Forsyth, for enabling a Private Notice Question to be placed on the Order Paper of your Lordships’ House on the very day of the Spring Statement. Doing so has drawn out a number of facts. One is that, as I interpreted the Minister’s response in the Chamber a few minutes ago, the Government have done no affordability assessment, and nor has anything been done as an impact assessment more generally. That is very serious, as in most cases impact assessments are part and parcel of what the House of Lords is asked to consider.

Many responders to the committee’s inquiry said that universal credit was not necessarily broken. The noble Lord, Lord Forsyth—indeed, the report—says that it commands broad support in principle as a structure, but it does need reform. It is hardly surprising to me that some things went wrong, simply because it was such a major change to the benefits system. Inevitably, some things do not work as well as you want them to. However, as the noble Lord, Lord Forsyth, identified in his introduction, the rise in the use of food banks is a direct consequence of what has happened with universal credit. The noble Lord was absolutely right in his initial remarks to comment on why the Government said that they were surprised by the recommendations in the report—because so many of those recommendations are absolutely justifiable. So I will add my own surprise that the Government were surprised in their response to the committee’s recommendations.

As the committee said, universal credit should not undermine

“the security and wellbeing of the poorest in our society.”

I understand, as I guess we all do, that the report was issued at a very worrying time for a lot of people as the pandemic threatened their livelihoods. Like the noble Lord, Lord Forsyth, I recognise that the Government produced temporary and permanent welfare measures to the value of around £9 billion during the pandemic. In the Budget last October, low earners were able to keep 8p more for every £1 earned, and the work allowance increased by £500—and the pressure on the taper issue did have an impact.

The report congratulates DWP on its response to the pandemic and the huge increase in workload that the department had to manage, helped by digital working and automated processes. However, as the committee said, the underlying problems with universal credit remain. Some new claimants are not used to monthly pay. A fortnightly payment option would help them. The five-week wait for new claimants is too long and creates insecurity. The committee’s two-week grant recommendation seemed to me to be a very wise and helpful proposal, but the Government have turned it down. I still do not fully understand the audit reasons they have for so doing, because there are ways around that, which the committee proposed.

The Government say that an applicant may be able to get a universal credit advance if they are unable to manage during this five week-period. I hope that the Minister might be able to tell us in her reply what evidence from research undertaken by the DWP the Government have that that advance system is working fairly and reasonably for those who receive universal credit. As the committee rightly identified, the principle at stake is that the system should not cause shortfalls in income for individuals. As the noble Lord, Lord Forsyth, said, sanctions should be applied only as a last resort. The DWP should do affordability assessments before making deductions from awards. As a principle, someone’s income should never be lower than their essential needs.

We have heard about the cut of £20 per week; there has been a huge amount of debate around it. In my view, it was a gross error. I was hoping that something further might be done about it today, but I fear that that has not happened. More than 5 million low-income families lost just over £1,000 from their annual income, creating severe financial hardship for many people. What this revealed was that the real problem with universal credit is low incomes; that issue is fundamental to understanding the crisis around universal credit. With the current inflation rate heading towards 10%, an uplift under CPI of 3.1%—the Minister will recall our discussion of that uplift in Grand Committee a couple of weeks ago—simply will not do.

Crisis seems an appropriate word to use in this situation. Rent costs, housing costs, energy costs, food prices and transport costs are all rising. Food bank use has been rising and is clearly going to rise further and further. Household finances are much more difficult for the low paid because they have so little money. We need a real living wage, not the national living wage. The Government talk of the national living wage, but they have to talk about the need for a real living wage. It is true that many universal credit recipients are in work, but many people see adjustments being made to their hours of contract. It does not help when people get their hours cut, never mind a low hourly rate; in the end, this is about the income they receive.

I repeat that the five-week wait is the primary cause of insecurity in universal credit as it

“entrenches debt, increases … poverty and harms vulnerable groups disproportionately.”

Those were the words used by the committee, so there is an opportunity for the Government here. We will not get more than a few months into 2022 without needing to do something further.

In that respect, I ask the Minister about the proposal to close so many DWP offices. I seek an assurance from her that this will not in any way impact the support of clients who need help. A few days ago, there was an announcement that 42 DWP offices were to be closed across the UK. Apparently, 13 will be full closures while 29 are to be closed and relocated. There are offices being closed in Stoke, Southend, Peterborough, Chesterfield, Aberdeen, Kirkcaldy, Barrow, Bishop Auckland, Doncaster and Burnley—taking jobs out of these communities.

The Minister, David Rutley, said that the closures

“will not impact on jobcentres and the customer-facing interactions”.—[Official Report, Commons, 17/3/22; col. 1032.]

Can the Minister explain exactly what a customer-facing interaction is? What are the implications for the agreement and contract that the Government have with Citizens Advice, which comes to an end a year from now, in March 2023? Under the help to claim system that has been running since 2019, Citizens Advice in partnership with Citizens Advice Scotland has given people independent advice. I understand there has been an investment in that of £21.3 million. If it would be helpful for the Minister to write later, rather than respond in detail now, I want to be reassured about the impact on people for whom digital or telephone contact may be very difficult. If they were able to go to a local office, will they be able to continue to go to that office to secure help?

That is all I want to say at this stage, but I think we will come back to this matter several times this year. I hope the Government and the Chancellor understand that this issue is profoundly serious. I said that two weeks ago, when we talked about the use of CPI at 3.1% for the benefit uplift, when inflation is heading towards 10% this year. For those on low incomes, that position is simply unsustainable.

Lord Bishop of St Albans Portrait The Lord Bishop of St Albans
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My Lords, I first add my thanks to the Economics Affairs Committee for producing this excellent report. As is often the case with a Select Committee report, reading it is not only enlightening but deeply informative. I have learned a great deal from it, for which I am grateful.

I too pay tribute to the noble Lord, Lord Forsyth, for his tenacity, such as when securing the intervention in the Chamber earlier. It was so interesting that the concerns were being raised from every Bench. I hope the Government Whips and others are listening to the profound unease coming from every quarter of the House; it is not going to go away. I have experience of working across two relatively well-off counties. I used to work in the Black Country, but nowadays I have responsibility for Hertfordshire and Bedfordshire, which are fairly wealthy, by and large. The concerns coming out of parts of Watford, Stevenage and Bedford are uniform: we are facing a serious challenge.

I have to confess to noble Lords that some of the material in this report was new to me. I am ashamed to say that I had not realised, until reading it, that universal credit is being used by the Government as a vehicle to recover debt. I was glad to be able to raise that earlier although I do not think the Minister understood the point I was making, because we received no answer. This is deeply disconcerting, not only because it will not deliver what the Government want. Simply taking pennies off the poor at a time when Her Majesty’s Government have written off £16 billion in Covid business loans due to errors and fraud—which led to resignations from the Front Bench in our own House—is quite extraordinary and unrealistic.

As a general principle, I am absolutely committed to recovering debts. If the Government deem it necessary to pursue these historic tax credit debts from UC claimants, I hope they will broach other debts with the same level of vigour. I think we have no choice but to support the recommendation that we look for a Jubilee-style “Reset the Debt” policy, which would be just a small first step to addressing the serious and growing problem that we face.

What is true of the notion of pursuing claimants is equally true of the sanctions regime, which, as the report mentions, is one of the most punitive in the world. The findings of the report in this regard largely mirror those of the 2015 study by Christians Against Poverty, which stated that there was little evidence to suggest that the UK benefits sanctions regime made a positive contribution to helping people find work but that it did help in discouraging those who were unemployed from applying to the benefits system. I fear that the new shortened sanctions regime introduced earlier this year is merely an extension of this logic: an aid to get people off, and further discourage them from accessing, UC. However, the whole point about UC is that it is for people who have no other place to turn to. That is why it is vital that Her Majesty’s Government can categorically prove that sanctions help facilitate claimants in finding work and that the Government are open and honest about their purpose and effects.

I move now to some general points. The most fundamental question is whether universal credit is enough to live on. Leave alone the details of the system; there is simply a fundamental, pressing question when we face the levels of inflation that the noble Lord, Lord Shipley, has just mentioned about whether it will enable people to weather the current economic storm. Can the Minister assure us that Her Majesty’s Government are looking at what would be appropriate increases in universal credit, as this huge storm comes together? It is simply hitting people now. I had a meeting this morning with someone from my diocese who yesterday visited the food bank in Broxbourne. Parts of Broxbourne are fairly well heeled, but they had seen a doubling in the number of clients in the past year; it has really hit them badly.

This report goes beyond a simple discussion of the amounts of universal credit that individuals receive and details the design flaws and tensions within the scheme. We all know that it is hoped that UC should be a transitional pathway to lead people into stable, long-term employment and financial independence. We all think that is the best way forward. The problem is that we are trying to do it at a time when much of this poverty is to do with in-work poverty, as repeatedly and consistently raised by different people.

Regardless of the lived circumstances, I echo the report’s concerns on the substantial fluctuations in month-to-month income due to the monthly assessment period and the huge difficulties that that is causing people. When visiting and meeting people in different parts of my diocese, I have been struck by how much this has been raised, as if it is almost impossible to make any plans. That then rolls out in all sorts of areas of public policy. For example, not being able to plan means that we cannot do the detailed work needed to ensure that people can live on a balanced diet, so that we can address the huge problems caused by eating inappropriate foods and obesity, which have knock-on effects such as diabetes and other problems.

I totally support the report’s recommendation to fix the level of awards for three months, to provide longer-term budgetary stability and encourage people to work without any pecuniary downside. Extending the assessment period might allow individuals to experience what one hopes is the dignity of labour as a platform on which to build their employment prospects. I hope that the Government will take on board some of the report’s recommendations so that we can attend to the disparities and produce a fairer and more just benefits system, which accords with Her Majesty’s Government’s own vision of a system that will help people to move into work in the long term and find themselves in a position where they can be full and contributing members of society.

Baroness Valentine Portrait Baroness Valentine (CB)
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I am grateful for this opportunity to discuss this important topic. I will focus on one particular aspect of universal credit: housing benefit. I should first say that I work part-time for Business in the Community on levelling up left-behind towns, in places such as Bradford, Rochdale and Sheffield. Each of these towns has their own unique strengths and challenges. In passing I should say that I am delighted that Bradford has just been shortlisted for City of Culture, which would give the city a tremendous boost.

The place on which I want to concentrate is Blackpool, which, according to Zoopla, provides a gross annual yield to buy-to-let investors of 8.6%, the second best in the country. So far so good, but now let us look at the living conditions in those buy-to-let houses. Blackpool has about 4,000 private rented units in the centre of town, the legacy of bed and breakfasts that did not keep up with the more modern hotel accommodation that is now available. Many of these B&Bs have been converted to houses in multiple occupation and those HMOs are located in eight of the 10 most deprived wards in England. Life expectancy in this area is the worst in England.

Some 80% of these tenants rely on housing benefit or universal credit. While tenants in social housing can rely on the decent homes standard, there is currently no quality assurance for a private landlord receiving housing benefit. Therefore, if you are motivated only by money, or indeed absent and unaware of local conditions, the incentive is to squeeze in as many people as possible, leading to those profitable yields that I mentioned. Not only are these people crammed in, but the conditions are appalling. It is estimated that one in three of these buildings has a category 1 hazard. This type of hazard is defined as

“the most serious harm outcome … for example, death, permanent paralysis, permanent loss of consciousness, loss of a limb or serious fractures”.

I am delighted to say that two Secretaries of State had the chance to see these dreadful living conditions for themselves last week, during the Conservative Party’s spring conference. The Government have now announced a package of interventions. These include beefing up the council’s inspection and enforcement team and investing through Homes England to create more liveable neighbourhoods.

I am truly delighted that the national Government have focused on Blackpool as an exemplar of how to level up. But the issue remains that tens of millions in housing benefit goes to these HMO landlords and, without any requirement for decent standards, there are plenty in Blackpool who will do everything in their power to avoid the expense and hassle of upgrading their properties. It is imperative that, as soon as possible, the Government bring in legislation which means that substandard landlords are not eligible for housing benefit payments, mirroring the decent homes standards that were introduced in the social housing sector in 2000.

The levelling up paper aims to reduce the number of “non-decent homes” by 50%,

“with the biggest improvements in the lowest performing areas.”

I would like to suggest an addendum: “and no non-decent homes will be funded by public funds provided through housing benefit or universal credit.”

Lord Bridges of Headley Portrait Lord Bridges of Headley (Con)
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My Lords, I start by congratulating my noble friend Lord Forsyth and the committee on their excellent report. I had zero hand in it and agree with it entirely. It is always difficult to follow my noble friend Lord Forsyth on occasions such as this, because I feel that I am repeating everything he has said—he is so eloquent at summing up reports.

I am not going to go through the entire list, but it strikes me as an incredibly comprehensive critique of how universal credit should be improved. Reading the Government’s response, I too was very disappointed by its tone and substance—and, like the noble Lord, Lord Shipley, I was surprised by the Government’s surprise.

Something more fundamental than this strikes me. As we just saw in the Chamber, this entire area of policy, especially the issue of the £20, is uniting Members on all sides of the House. This area of policy needs a fundamental reassessment, for reasons that I will come on to, but especially for the reasons the report sets out: the five-week wait for the first payment; fixing the level of awards for three months; rebalancing the sanctions regime; the abuse of universal credit to recover debt, as the right reverend Prelate mentioned; and, perhaps most important of all, making the £20 a week uplift permanent. All these recommendations seem to make perfectly eminent sense—and that was the case when the report was published.

Let us remember, as the noble Lord, Lord Shipley, said, that the world is now fundamentally different. Back then we were in the first phase of the crisis called Covid and inflation was still seen as under lock and key, or thereabouts. Oil was at $40 a barrel. Today, we have heard that prices are rising at the fastest rate for 30 years and oil is at $120 a barrel. It really is the case that the past is a foreign country; we did things differently there.

As we look ahead, we see energy bills rising by 50%-plus in April alone. As we heard in today’s Statement, households are facing the biggest fall in disposable income per person since the 1950s. Meanwhile, the backdrop to this is that the tax burden is on track to be at its highest since the 1950s, while debt is at its highest level since the 1960s. It is worth noting, as this is the backdrop to all the policies that we are addressing, what that means. As we heard in today’s Statement, interest payments are set to hit £83 billion in the next fiscal year. That is a record level—more than is spent on schools, the Home Office and the MoJ combined.

So wherever I look on the economic dashboard, I see the lights flashing red. As the noble Baroness, Lady Lister, and the noble Lord, Lord Shipley, said, this is an emergency. At times in politics we are apt to use the word “crisis” in a slightly flippant way. But this is a crisis, and it really is one for those who are on the lowest incomes. I think all of us here share a sense of responsibility and a sense of wishing to take real and urgent action to address that.

As the OBR warns today, and as my noble friend pointed out, benefits are going up by 3.1% in April, but inflation is set to average at 8% in 2022-23 as a whole. Before today’s Statement, low-income households face a real-terms cut in income just six months after the £20 per week cut to universal credit. Let us remind ourselves what all this amounts to. The Child Poverty Action Group’s analysis shows that families’ universal credit will fall in value by £570 per year on average. The Joseph Rowntree Foundation has calculated that 400,000 people could be pulled into poverty by this real-terms cut to benefits. Families with children in poverty will face £35 per month in extra energy costs even after the Government’s council tax rebate scheme is factored in.

That is before we get to other issues that we should be concerned about. One that I am very concerned about is the rising cost of food. Wheat prices are already up 40% this year alone. That is before we get to the threat of another hike in energy bills in October. Citizens Advice forecasts that 14 million households will struggle with their bills. That is one in four adults. Let us put all that together: we cannot continue with business as usual.

I absolutely applaud some of the measures taken today but, as the document from the OBR makes clear, total tax and benefit changes in today’s Statement offset only about a third of the overall decline in real per person disposable incomes. That assumes that this crisis does not deepen further. Although I welcome some of the measures in today’s Statement, I cannot help but think that we are giving with one hand and taking back with the other, creating a piecemeal system that is extremely confusing.

I ask a simple question, building on what others have said: why are the Government not taking the simpler and more straightforward approach of using the welfare system and reforming it to help those on low incomes and committing to the policies set out in this report? I know that the Minister will argue that the increase in work allowance and the cut in taper are an effective tax cut. We heard that from the Chancellor on Sunday. But what does she say to the Resolution Foundation, whose analysis shows that around three-quarters of families—that is 3.6 million—on universal credit in 2022-23 will be worse off under the new regime than they would have been absent the last Budget changes but if the £20 per week uplift had been retained? That is question one.

Secondly, picking up on what my noble friend said, what does the Minister say to the finding that the overall marginal effective tax rate for universal credit families earning over the work allowance will be 70% in 2022-23? This is the same rate as experienced by families receiving tax credits from 2003-04 to 2010-11. How does this 70% marginal tax rate square with the Government’s assertion that they will ensure that “work always pays”?

Finally, as I said in the Chamber earlier, I fear that we have lost sight of one of the best ways to help those on low incomes, which is to provide them with jobs and job security. I have to repeat what I said in the Chamber: the rise in national insurance is absolutely a hammer-blow to many of the people we are talking about whom we wish to help and the businesses that employ them. Of course I welcome today’s announcement regarding thresholds and likewise I welcome the employment allowance, but I note that today the Institute of Directors has commented that this measure is marginal for employers.

We have to consider what the national insurance rise will do, not just for employees but for employers. Let us consider the sectors that will be worst hit, which are the ones that have been worst hit by Covid: distribution, transport, hotels and restaurants. How will this measure help them create jobs? How does it help them encourage investment? How does it make them more competitive? How does it help them to keep their costs low? I hate and dislike everything about this tax rise. It is taking us in the wrong direction. But the key point that is relevant to this debate is that it exhibits a lack of strategy and a lack of principle that bedevils this Government. It does nothing to help those on low incomes who need that job security.

The question for my noble friend the Minister, who I fear might get a bit of a tough time this afternoon, but I know she can take it, is whether the Government are really doing enough to help those on low incomes. Are they really rising to the moment? Do they still see this as business as usual or are they treating it as the emergency that it really is?

Viscount Chandos Portrait Viscount Chandos (Lab)
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My Lords, I am delighted to follow the noble Lord, Lord Bridges, who, as he has just demonstrated, is an excellent successor to the noble Lord, Lord Forsyth, as chairman of the Economic Affairs Committee.

We are finally able to debate our report on universal credit, in the bijou location of the Moses Room, 20 months after its publication. Other noble Lords, not least the noble Lord, Lord Shipley, have remarked on this unacceptable delay—if not necessarily the relegation of the debate to the Moses Room. For me, there is perhaps one silver lining to this cloud, which is that I find myself the only speaker this afternoon, apart from the noble Lord, Lord Forsyth, who was an EAC member when the inquiry was held, so I feel that I can be permitted to say a few words about the chairman as well as echoing his tribute to the work of the staff, special advisers and witnesses who guided us through this exceptionally complex and difficult subject.

The noble Lord, Lord Forsyth, led the committee from the front and none of us could match the burning sense of injustice about the Government’s policies that he articulated in the meetings and subsequently, as his introduction today has demonstrated. It is a little-known secret that to commemorate Sir Bernard Ingham’s description of the late Lord Biffen as a “semi-detached” member of the Thatcher Cabinet, the Conservative Whips in your Lordships’ House vote annually on the Bernard Ingham award for semi-detachment. I am told that the noble Lord, Lord Forsyth, has won this so many times in recent years that he may well own the trophy in perpetuity, although I think that there are promising signs that the noble Lord, Lord Bridges, may give him a run for his money.

It would not be right to thank the many witnesses who gave oral or written evidence without noting the particular contribution of Sir John Hills, professor of social policy at the LSE, who very sadly died not long after the report’s publication.

I will concentrate my remarks on a couple of big-picture questions; other speakers have already raised highly effectively many of the specific recommendations in the report and the universally disappointing response from the Government. First, is it right to see universal credit as the basis of in and out of work benefits for the foreseeable future? The report’s summary states that

“we received overwhelming evidence that Universal Credit should not be replaced with a new system, not least because of the severe disruption that this would cause for millions of people.”

Although I continue to feel a nagging worry that this could be an example of sunk cost fallacy after 10 years of tortuous migration from legacy benefits—still not completed—I at least tentatively support this conclusion. My suspicion is that the digital platform on which universal credit is based should and will survive but that, by the time the reforms advocated in the committee’s report and others from different sources have been implemented by possibly a more enlightened Government than this one, the system will be largely unrecognisable from that which currently prevails.

One of the recommendations of the report was that childcare should be taken out of universal credit. Picking up on the remarks of the noble Baroness, Lady Valentine, we had a vigorous debate about whether housing benefit really fitted within universal credit. In the end, we concluded that it should not be moved, but I think that a universal credit system would still work effectively with four or five of the legacy benefits incorporated, not the current six.

I turn now to my second main question. Can any system give the support that the noble Lord, Lord Forsyth, so eloquently argued that we, as a civilised society, should give to those in financial distress? I vehemently support the noble Lord’s condemnation of the Government’s decision not indefinitely to continue the £20 per week uplift that was introduced for the period of lockdown when many households’ outgoings may have decreased.

However, as every psychotherapist might say, “Maybe we should move on”. I will move on and ask the fundamental question: what amount is necessary and fair for any household to live on? Professor Jonathan Portes, who was the chief economist at the Department for Work and Pensions from 2002 to 2008, wrote last year:

“The overwhelming case against cutting Universal Credit: not the pandemic, but the extraordinary cuts to unemployment-related benefits over the last four decades.”

In the period from 1979 to 2019, average out-of-work benefits fell from 25% of average earnings—hardly a licence for luxurious living—to less than 15%. Even if the temporary uplift in universal credit in 2020-21 and the suppression of some earnings may have reversed that trend in those years, the relative normalisation of the economy now will inevitably see new lows tested.

The furlough measures introduced by the Government in response to the pandemic and related working restrictions were rightly and generally praised. These provided for furloughed employees to receive 80% of their previous earnings, capped at £30,000 per annum. Can the Minister explain to your Lordships why she thinks that, if 80% was the right level of income support under the furlough scheme, 15% of average earnings is a justifiable level of support for unemployed people in normal economic conditions? I am not saying that 80% is a sustainable level in the long term, but surely 15% is far too low.

It may or may not be a coincidence that today’s debate coincides with the Chancellor’s Spring Statement, with what I can only regard as a stunt of an income tax cut in two years’ time—and I admit that perhaps the inventor of stunts of that sort was my right honourable friend Gordon Brown. The general tone of today’s Spring Statement seemed to be, “I’m all right, Jack”. Unless and until the Government reform the system of universal credit in the way in which the committee has advocated, we will face a period, to adapt JK Galbraith, of

“private affluence and public poverty”.

Lord Desai Portrait Lord Desai (Non-Afl)
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My Lords, one of the great advantages of being a non-affiliated Peer is that I am always placed last on the list. I want to take a different stance from that taken by most noble Lords. I agree with all noble Lords that this is an excellent report and I have learned a lot from reading it. I have studied poverty in various ways in the UK, India and other places for much of my career in economics. There is one unfailing thing that one can say about these things: to those who have, more shall be given, and from those who do not have, what little they have shall be taken away.

Debt recovery procedures are much tougher on the poor than they are on the rich. In 2008, when the stock market collapsed, all previous discipline of balanced budgets was abandoned and money was printed like there was no tomorrow to give the banks, which had lost money, and everybody else lots of money so that they could re-establish the value of their property. The consequence was that, when universal credit had to be implemented, there was no money, surprisingly. It was therefore created in an atmosphere where it was said, “We don’t have any more money for all this”. So the poor, as always, were the last in the queue.

I want to take a slightly different stance from that taken by most speakers. Why is the political economy of welfare, if I may so call it, so mean to the poor? This is not just about universal credit, although I would say that it is especially horrible to the poor. For a long time, we have had a tradition that the poor should be treated with suspicion. The poor will be suspected of being lazy and shiftless and if they are ever unable to prove that they are seeking work, that will immediately lead to some kind of punishment by taking their benefit away.

It is interesting that the noble Lord, Lord Forsyth, who has shared with us his committee’s great report, quoted the Theory of Moral Sentiments and cited the Chancellor. During the pandemic, I have written a book about why political economy is so misanthropic. Adam Smith was all right; he was generous in his attitude towards the poor and how the whole purpose of an economy was to create wealth not only for the few but for the many, if I may coin a phrase. It was with the Reverend Malthus and Ricardo that economics became very mean. When Malthus invented his completely fake theory of population growth, it was to make sure that the poor were not given more money because, if they were given it, they would breed more people and therefore it is useless to give people more money. David Ricardo put that in his theory of how there should be an iron law of wages. We then had the poor law reform in the 1830s and so it continued.

The logic was simple. There are so-called paupers who cannot work due to physical reasons, but they are all right. Then there are the poor, who are to be suspected because they are capable of working but likely to be lazy and shiftless, so the maximum meanness ought to be exercised in compensating the poor—you have to make them work. Finally, under the great and rational Benthamite rule, workhouses were created so that the unemployed would be in those, and nowhere else, to be strictly supervised by the poor law commissioners. Bentham wanted the children of the poor to be employed from the age of four as apprentices, so that they would learn that work was their fortune.

We have continued like this. I remember when we had the idea, before universal credit came, that if a single person was poor they would get so much but if it was a couple, they would not get twice that: they get less than twice because somehow the poor do not need as much money as the rich. That of course led to people living apart. Then people had to spied on by their local council in case they were cohabiting, which was not so much a sin as an economic crime, and so on.

We have this attitude, and it has not gone away. During the 2010 to 2015 Government, corporation tax was cut because cutting corporation tax or income tax is always good and beneficial to society. However, as far as the poor are concerned, cutting it is good for society because that is where we have to save money. This sort of logic has continued. I do not know how one can move the political and economic system from appreciating that announcing a 1p cut in tax in 2024 will get you applauded in Parliament. However, had he said that he would restore the £20 cut in universal credit, he would have done much more than was expected of him.

Anyway, I want not so much to ask questions but to make a couple of points. How does whatever minimum entitlement we have decreed for universal credit compare with the poverty levels that the European Union has laid down? The World Bank has a measurement of poverty for the third world; it is around $3.50 per day per person. The EU standard is 60% of median income; I may be wrong by a few percentage points but 60% of median income is the EU poverty level. Is the universal credit entitlement below or above the poverty line?

I should also say that, as soon as I started studying these things, I found these arrangements so complex that you need a PhD to know what is going on. I remember that there used to be a very fat book published by the Child Poverty Action Group in the 1960s to help people make their way through the variety of benefits and things, with all the conditions and exceptions and this and that. Why do we make the poor work so hard for the pittance we give them? Why can we not simplify the matter so that people get their money in a certain, predictable way? After all, as someone else said, we are not giving them much money compared with how much we have lost in fraud. It is nothing; it is a pittance. Although we were right to give money for furlough, we did not give a similar amount of money to the poor.

So we need a political rethink of why we do what we do. Why is the logic always misanthropic in our political economy, or whatever you want to call it? I hope that reports like this one will make us think that we have to change our attitude completely and not expect the poor to be more patient, more frugal and more rule-obeying. The fault, dear Brutus, is in ourselves and not in the poor.

Viscount Brookeborough Portrait Viscount Brookeborough (CB)
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My Lords, I am grateful for being allowed to speak in the gap. I apologise for not giving notice; I did not think I was going to be here. I had not even noticed that the debate was going on.

The report led by the noble Lord, Lord Forsyth, seems excellent. I am not surprised by the disappointment in the reaction. I was a member of an ad hoc committee on financial exclusion that reported in 2017. We did some of it on universal credit, although we did not go into the same depth. I agree with everything that has been said.

In the time I have, I want briefly to comment on people and mental welfare. Mental welfare has become an increasingly important topic, led by Prince William and others. It really is important and, as things do not go so well, it becomes more and more important.

One of the problems is that universal credit is too complicated. We have just heard that it is so complicated that we do not understand it. People feel like criminals when they go through this process; I will come on that in a minute. The five-week wait puts people in debt. The Government will argue that that is not the whole reason, but we know that there is an increase in the number of people who are going into debt, for one reason or another, as a result of universal credit.

We went to Toynbee Hall, among other places. As noble Lords may be aware, this is an amazing charity that supports disadvantaged people. Many things struck me there. One was a lady who I and others were talking to. She said, “I just pray that you can give me some help. This is my correspondence about universal credit”—and it was a full lever arch file. She could not understand it and we could not understand it. All it said was, “Thank you for the answer to your last question. Will you please answer the following? Thank you for the answer to that; will you please do this?” She was at her wits’ end and felt she was being criminalised.

The next problem is the wait for money and people going into debt. This has a far greater effect than the Government ever seem to accept. The low-income group is an incredibly proud group of people. They care for their pennies, worry about the food they buy for their families and manage their expenses in an amazing way. Then a change in system dictated by government puts them into debt. They say, “We’ve never been criminals; we’ve always obeyed everything. But, to me, being in debt is a crime”. It does not just hit them; they are destroyed by this.

Therefore, when the Government say that they do help but there will be some people in debt, take a moment to understand the hundreds of thousands of people who, first, are made to feel like criminals because they have to fill in so many forms and answer so many questions and, secondly, feel like criminals because they are not able to hold their heads up and say, “I have never owed anybody anything”. Something like 40% of the population are not able to repair their washing machine out of cash—and we then do this to them. I ask the Minister whether the Government would consider this further. It brings you to tears to listen to them, when you can do nothing whatever to help. We have devised a system that has taken them away from their careful life planning —not borrowing, because they hate it, and not stealing, because they are not criminals. We then put them into this and, in three weeks, they are in debt—and, as far as they are concerned, they are criminals.

Lord Kerr of Kinlochard Portrait Lord Kerr of Kinlochard (CB)
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We are debating an excellent report, like all the reports produced by the Economic Affairs Committee under the dynamic and effective chairmanship of the noble Lord, Lord Forsyth of Drumlean. I find that very annoying, because I was a member of his committee and, after leaving, have detected no falling off at all in the quality of the reports it has produced. I have to tell the noble Lord, Lord Forsyth, that, knowing how dynamic and effective the noble Lord, Lord Bridges, is, I do not expect to see much falling off in the quality of the reports now, either.

The sad thing about this report is that it has not been overtaken, although it came out in July 2020. There is an extra dimension of sadness for me in that something is missing that could not be there, because it was written in July 2020, before the energy price spikes started. As the noble Lord, Lord Bridges, said, the energy price cap will go up by 54% next week. That is based on the increase in wholesale energy prices last autumn. We are now in the next reference period, which will determine the increase in October. At present, we are in for a rather larger increase. It looks as if the average household price, which is teetering at nearly £2,000 now, will go up to over £3,000, with another increase of 55% or 60% in the autumn.

We all know what a big component of household expenditure heating and lighting is for the less well off. Is it beyond the wit of man, or the wit of the department, to consider indexing universal credit, or an element of it, to the price of heating and lighting? Next winter could be an extraordinarily bad one for anybody on universal credit, for all the reasons that were set out in the report and discussed in the Chamber today, but with the additional reason, perhaps bigger than most of them, that the price of heating and lighting will be very much higher.

Baroness Janke Portrait Baroness Janke (LD)
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My Lords, I too thank the noble Lord, Lord Forsyth, and the Economic Affairs Committee. As the noble Lord, Lord Kerr, said, it is a very august and illustrious committee, as I am sure it was when he was a member of it. It is of great encouragement to me, and I am sure to the noble Baroness, Lady Lister, and others, that we have this support for major changes to universal credit. I have to say that in the past we have not had a great deal of support for the kinds of changes proposed in the report, many of which we have raised. But I am encouraged today, and I hope that we have two people here who will see some of these fundamental changes through and campaign for them. I know the Minister; she is also a campaigner, and I know she will be very good at understanding the issues raised in the report and their effect on the people they apply to.

An effective safety net must provide realistic and accessible support for anyone who falls on hard times, whether through loss of a job, bereavement, relationship breakdown or other personal catastrophes. Any of these could happen to all of us in periods of our lives; they often do. The current system manifestly does not do this, as the report evidences.

The report identifies and analyses a range of familiar problems, as well as the lack of confidence, failure to understand how the scheme works and general feeling of powerlessness experienced by people who try to use the scheme, and gives practical recommendations. As many noble Lords have said, there is a need for a fundamental revisiting of the scheme’s finances. I know from reading the book Clashing Agendas by the noble Lord, Lord Freud, about the pressures in place when the Government tried to establish the scheme and set it on its way. As the report says, now is a timely moment to look at the fundamental financing of the scheme.

All noble Lords mentioned the crisis we face in energy and prices. The sticking plaster today in the form of an increase in the household support fund seems to show contempt for the suffering of so many people. As I said, I am grateful for the report because it does so much to analyse with the committee’s rigour and bring forward firm proposals that are deliverable, so I am hopeful.

As the noble Lord, Lord Forsyth, said, confidence in the scheme is extremely low. There is an overall perception of a chaotic system that is incomprehensible, inaccessible, intractable in its decisions and harshly punitive of any perceived shortcomings of claimants. I have written down some of the report’s themes that I hope the Minister will respond to, particularly the recommendations, which seem very sensible, as many noble Lords have said.

As I said, more funding is definitely needed to provide adequacy. The current level of support is quite rightly said by many to not be enough to live on. It needs to be a secure and fair scheme that provides proper support for claimants when they need it. So the recommendation that the Government should have committed

“to making the increase in the standard allowance permanent”

is very welcome. The recommendation also says:

“To avoid undue hardship and poverty it should also examine the relative levels of benefits for couples and those with children and investigate whether there are other claimant groups who do not receive adequate income.”

Many noble Lords have referred to the delays in the system. The five-week wait is ruinous for many people. I was encouraged to see that, during the lockdown, many people who would normally be in work were made aware of just how awful it is to have to wait five weeks when you have no money to put food on the table.

The inflexibility of the monthly assessment period has been fairly well documented—in fact, I think there has been a court case on it. The idea that people should be paid monthly because it corresponds to work takes no account of the way people work nowadays. It takes no account of the fact that people work on zero-hours contracts and that many need to have two jobs in order to live. Not only do they have to wait but, worse still, they have deductions made because they were overpaid because of the schedule, not because they have too much money. As I have said, for many people, it is incomprehensible that they should be put through this system.

The recommendations on conditionality, sanctions and the punitive approach are welcome. The suggestion of a written warning system is very helpful, because many claimants do not even know that they are going to be sanctioned or realise it only when they have just had their money cut. Similarly, I support the recommendation that deductions from universal credit be first subjected to an affordability assessment and made only in accordance with what the claimant can afford. I would like to see that brought in.

Some elements of the system actually increase poverty, including the two-child limit—if the right reverend Prelate the Bishop of Durham were here today, he would have a great deal to say about that—so I welcome the recommendation that the two-child limit be reinvestigated. I am not necessarily sure about the tapered allowance for large families; I would like to see the evidence that that would adequately support larger families before I agreed with it. However, we certainly support the ending of the benefit cap, which we believe is another direct cause of poverty for many people.

Many noble Lords, particularly the noble Viscount, Lord Brookeborough, mentioned that the Government’s response is not surprising. I am sure that the noble Baroness, Lady Lister, who has been campaigning on this subject for much longer than I have, was not surprised by it either. However, we are encouraged that the chilling economic circumstances described so ably by the noble Lord, Lord Bridges, might bring about some rethinking in the Government and hope that it will be an incentive. One hates to think that it needs a financial and economic crisis and a crisis in the cost of living to make the Government rethink, but if that happens, we will be very pleased to see it.

As many noble Lords have said, it is the most vulnerable who will suffer the most punishing circumstances in the cost of living crisis. The noble Lord, Lord Kerr, referred to indexing universal credit to the price of heating and lighting. That would be a welcome measure. The point on cuts in budgets over the past 40 years, made by the noble Viscount, Lord Chandos, is, again, one that we need to take into account. Comparison between the furlough and what people receive on universal credit is very telling indeed.

This has been a call to arms from the Economic Affairs Committee and I hope that the noble Lord, Lord Bridges, will take the fight forward as chair. I know that he will have plenty of people who will be willing to help him. I hope that, as a result, we might see a real advance. I again thank the noble Lord, Lord Forsyth, for his strength of purpose and his willingness to take on big challenges, and hope that he will continue to do so.

Baroness Wilcox of Newport Portrait Baroness Wilcox of Newport (Lab)
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My Lords, I am the substitute for my noble friend Lady Sherlock. I could not even begin to match her wide knowledge and experience of these matters, but I can match her determination in wanting to put things right. I welcome the many detailed contributions from your Lordships. I was particularly struck by the opening remarks from the noble Lord, Lord Forsyth of Drumlean, who made salient point after point about the dire state of the many millions of people significantly affected by the cost of living crisis. Indeed, he gave the Government many sensible and strong points to follow, and I hope they listen to what he said. They would be wise to act upon his advice and that of his committee. His words were ably supported by the new chair of the committee, the noble Lord, Lord Bridges of Headley, who provided clear and concise key points and noted a lack of principles in this Government.

A lot has happened since the Economic Affairs Committee published the report we are debating back in July 2020. As a result, some of its content and recommendations have been superseded—in particular, retaining the £20 pandemic uplift, which has been cut, and reducing the taper rate, which went from 63% to 55% in the last Budget. I will return to these points, but let me address the content of the report itself first.

Much of the report and the issues that it found with universal credit still exist and continue to make life difficult for those eligible for it. As the name of the report says, universal credit is not working. Temporary and inadequate sticking plasters like the household support fund are no substitute for a proper social security system that offers security to families in hard times. I acknowledge that the Chancellor has doubled that fund in his Spring Statement today, but, disappointingly, he made no mention of universal credit.

Although my view and that of the Labour Benches is that universal credit should eventually be replaced, which the report does not agree with, I share the report’s overall conclusion that “substantial reform” is required in the first instance, as in its current state, the inflexible system is

“harming many, particularly the most vulnerable.”

A big part of this is about complexity. Universal credit was heralded—I remember seeing the TV documentaries with Iain Duncan Smith—as a simplified system, making it easier for claimants and the department alike. Instead, as the report notes, claimants do not know the support they will receive on a month-to-month basis, and the use of an arbitrary assessment date and pay date do the opposite.

Claimants are also on the end of significant shortfalls caused by the whole-month approach to any changes in circumstance, which in many cases will be out of their control and in no way reflects the lives of those in low-income households. A fair system would reflect the lives of those using it and be flexible enough to adapt.

As well as reflecting any changes in circumstances, the Government have said that their intention was for payments to reflect work, but this is not the reality. The report notes—as did the noble Lord, Lord Forsyth—that many new claimants have no experience of monthly pay. Having no flexibility in payment schemes different from this is detrimental to claimants, who are being forced to accommodate the system rather than the other way around. This principle extends to single household payments. As the report highlights, this simply does not reflect reality, but more pressingly it is an enabler for financial coercion and domestic abuse by making it more difficult for sufferers of these terrible situations to escape.

But the most damaging design flaw is the five-week wait. We know that the Government are aware of this as they have taken steps to mitigate it, but they have not gone far enough. Taking an advanced payment—one of the Government’s favourite tactics to make it look as if they are doing something when they are really doing nothing—means claimants choosing between a shortage now or later. This has left claimants, particularly those in vulnerable groups, disproportionately in limbo, with increasing debt, poverty and anxiety. Also, it is a minimum five-week wait. Some people are waiting even longer—and, even if everything goes to plan, in this time many people are referred to food banks as they struggle with debt, rent arrears and the mental health issues that arise from or are exacerbated by the uncertainty.

Moving on from design issues, there is of course the question of the adequacy of awards. Since the report was published, the then newly introduced £20 weekly uplift has been scrapped—in October last year. That was the second cut to benefits in six months, which, given the numerous other issues with the system and the cost of living crisis, was the last thing that claimants needed and will have achieved little beyond making the wide range of difficulties faced by claimants harder.

It is welcome that the Chancellor followed Labour’s lead and reduced the work allowance taper rate at the last Budget, but that is the equivalent of bailing water from a sinking ship with a spoon. Over one in four people on universal credit have no work requirements because they are unable to work due to a disability or a caring responsibility—a group for which lowering the taper rate provides nothing.

The committee’s report also highlighted the use of universal credit to collect other debts, which claimants are often unaware of, from recipients including

“£6 billion of historic tax credit debt”.

How can the Government look at this and think it is anything other than entirely against the principles of the system? You cannot have social security that offers no security.

Ultimately, I think that drifting away from the set of principles that would constitute a working social security is where universal credit has gone wrong, regardless of how this point has been reached. My noble friend Lady Lister expertly noted that, in the longer term, a review of the adequacy of benefits is needed. She has a detailed understanding of the causes of poverty and has provided many solutions for the Government in her academic work, if only they were willing to listen and learn.

The committee set out eight key principles that it set the report’s conclusions and recommendations against, derived from evidence taken during the inquiry, and which it considers reforms should be shaped by. I hope that very few in this place disagree with a set of principles that includes dignity and respect, providing adequate income, security and stability, reflecting lived experience, and being fair and flexible. But what is clear from both the committee’s inquiry and the experiences of claimants that we hear regularly is that the system we currently have in place does not reflect these principles closely enough. So I sincerely hope that the Government will turn to them as a guide and enact the serious reform that universal credit requires.

Baroness Stedman-Scott Portrait The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office and Department for Work and Pensions (Baroness Stedman-Scott) (Con)
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My Lords, I congratulate the committee and my noble friend on the report that we have been considering today. I will start by saying that I completely appreciate the depth of feeling and passion on the issues that have been raised.

I start by disagreeing slightly with something. When it is said that universal credit is not working, I would have to disagree. If we had had the legacy system in place and the issues around Covid-19, I doubt that anybody would have got any money on a regular basis. There are certainly a lot of elements of UC that work, but today all noble Lords have raised concerns that we must take account of, and we must change where it is possible to change.

The reform of universal credit is an ongoing process. It is under the leadership of Neil Couling and his team. I congratulate them on their excellent work.

My noble friend Lord Forsyth mentioned pre-paid meters. At this stage, let me say that I completely agree about the issues and additional expense that they cause. This situation rests with BEIS but I undertake to follow up on it personally, as I agreed to do in the Chamber earlier this week.

I completely agree with noble Lords that this is a difficult time. I would like to set the record straight, if I may. On universal credit and the monthly assessment period, if we had had the tax credit system, there would have been an annual assessment. That is why we have the debt we do. A monthly assessment is far better for the individuals we are trying to serve.

I thank noble Lords for their contributions to this debate. It is worth noting, as some have said, that this report was commissioned prior to Covid-19. In what has been a very difficult period, the universal credit system has proven its worth through the invaluable support it has given to the 6 million people who faced financial insecurity during this time, with the pandemic seeing the amount of universal credit claims double and many people—a high proportion of them—being paid on time.

On the cost of living, which all noble Lords raised, the Government have introduced new measures to help with energy costs on top of the existing £12 billion of support that they are providing to help families during this financial year and the next. We are increasing the national living wage to £9.50 but I take the point made by the noble Lord, Lord Desai, about whether it is a living or a thriving wage; however, we have increased this amount as the years have gone on.

I will come on to more interesting points about housing costs, but we have helped with the cost of housing. Discretionary housing payments can be paid and are very flexible. In 2021-22, the Government made £140 million of discretionary housing payments available to local authorities. Vulnerable renters struggling due to the impact of the pandemic will be helped by a £65 million support package announced by the Department for Levelling Up, Housing and Communities. The funding will go to councils in England to support low-income earners in rent arrears, helping to prevent homelessness.

The noble Baroness, Lady Janke, and the noble Lord, Lord Kerr, raised the issue of energy bills. The Government have announced that they will provide significant financial support of up to £350 to the majority of households, protecting them from half of the forecast £700 rise in energy bills. This support is worth £9.1 billion in 2022-23.

There is also a £150 non-repayable cash rebate on council tax for 80% of households, and the Government will provide £144 million in discretionary funding for local authorities to support households that would not be eligible for that. There is the warm home discount scheme, cold weather payments and help with basic food costs through Healthy Start food vouchers. We are investing more than £200 million a year in our holiday activities programme while ensuring that children get food in the school holidays.

Noble Lords have said that our record on the cost of living is poor. I do not accept that. We have a proud record of being on the side of working people. Since 2010, under successive Governments, we have doubled personal tax thresholds, which we increased again today. We have doubled free childcare, which I will come on to. We have increased the work allowance and cut the taper rate; my noble friend was right to say that this measure was in his report prior to us doing it. Of course, as I said, we have also extended free school meals.

The robustness of the UC system was evident in dealing with an unprecedented event, which we could not have foreseen. As I have said, this would not have been possible under the legacy system. The digital nature of universal credit allowed for its adaptability during this period, where we managed to get a record number of claims processed within the first few months. This ensured financial security at a very uncertain time, with around 95% of claims being paid at the end of their first assessment period, despite pressures on the UC system. Regrettably, I must say that during this period organised criminals and opportunists sought to exploit the extraordinary circumstances of a global pandemic for gain.

Last autumn, we announced a 75% uplift in our investment in counter-fraud, compliance and debt operations, taking our funding to £1.4 billion over the next three years. With this funding, we are: setting up a new, targeted review of universal credit claims; investing in enhanced data and analytics to prevent fraud and error occurring; increasing our capacity to address serious and organised crime; and scaling up our existing operations, through funding for around 2,000 additional trained specialists to identify and stop scammers. This investment will generate billions of pounds of savings over the scorecard period.

The noble Lord, Lord Shipley, and the noble Viscount, Lord Chandos, raised Help to Claim. We recognise the challenges that a digital platform may pose for those who are unable to use this technology. That is why we have support through Help to Claim, and the alternative of being able to make a claim by telephone. A £21.3 million investment has been made available for the Help to Claim provision, providing support for a further 12 months, following a recent competition. From 1 April 2022, people will be able to access Help to Claim support online and over the phone through Citizens Advice and Citizens Advice Scotland. The service will be available at any time until the first full, correct payment of universal credit is made. People who are unable to access support, or to make their claim to universal credit by telephone or online, will be able to go to their jobcentre, where jobcentre staff will identify the right support to meet their needs.

The use of assessment periods ensures that we calculate a household’s benefit entitlement correctly, reducing overpayments and debt for families who already face financial uncertainty. The use of real-time information further enables this with accurate and current earnings information, ensuring the robustness of the assessment of entitlement.

All noble Lords have raised the issue of advances. I must confirm that, for those in financial need, the introduction of new claims advances allows for an eligible claimant to receive their full benefit entitlement up front, resulting in 25 payments of UC over 24 months. For those looking for work, universal credit works alongside existing provision to get people back into work, and to help fill the 1.2 million vacancies available. To highlight this, the Government’s Plan for Jobs initiative has made great strides in its bid to help 2 million people back into work. Further evidence can be seen through Kickstart, which is integrated with the universal credit system, resulting in over 130,000 young people getting valuable work experience to assist them to move forward in their careers. This is complemented by the reduction of the earnings taper and increased work allowance to ensure that work does pay, and results in 1.9 million households keeping, on average, around an extra £1,000 a year.

The department firmly believes that the best way to support claimants is through empowered work coaches, who engage proactively with claimants to help them identify the options they need to help build their skills, increase their confidence and return to employment. The claimant commitment is a tool for setting out, and getting the claimant to take ownership of, what they need to do in return for receiving their UC. In this sense, conditionality is indeed adapted dynamically with the claimant to ensure that the requirements for receiving support are appropriate and proportionate to the claimant’s current situation.

The claimant commitment is a key enabler to support claimants into work or to increase their earnings. For staff, it should be an enabler which supports robust setting and monitoring of work-related activities, and fair decision-making in relation to sanctions. The claimant commitment is a living document and is continually reviewed with the claimant, as appropriate, to ensure that it reflects their current situation. As such, the department considers that this meets the needs of the claimant, as well as our work coaches, in supporting claimants back into work.

When moving into work, there is additional support through the universal credit childcare offer. I completely understand the challenges that people face with childcare and that it sometimes stops them moving back to work. Eligible UC claimants can claim back up to 85% of their registered childcare costs each month, regardless of the number of hours they work, compared to 70% in tax credits. These can be claimed up to a month before starting a job and eligible claimants can receive help for upfront childcare costs by applying for help from the flexible support fund. Our work coaches absolutely love the flexible support fund and will use it legitimately for anything that helps to remove barriers for people going back to work. That help is non-repayable and paid directly to the childcare provider, where it is used for childcare fees. Additionally, a universal credit budgeting advance is available to eligible UC claimants to assist with upfront costs.

The Government are committed to improving the lives of disabled people and delivering the most ambitious disability reform agenda in a generation. In 2017, we set a goal to see 1 million more disabled people in work by 2027. In the first four years of the goal, between quarter 1 2017 and quarter 1 2021, the number of disabled people in employment increased by 850,000.

For those unable to work because of ill health or disability, universal credit provides generous support. A claimant who is determined to have limited capability for work and work-related activity is awarded an additional amount of benefit; it is currently £343.63 per calendar month, which is more than double the equivalent rate paid in employment and support allowance. Additionally, claimants who are assessed to have limited capability for work, or for work and work-related activity, are eligible for a work allowance and, in couple claims where one is working, access to help with childcare.

I try to be as respectful to noble Lords as I possibly can in all these debates. The two areas that the noble Baroness, Lady Lister, raises frequently—I respect her for it—are the benefit cap and the two-child policy. There is always a balance that must be struck between supporting those in need and having a system that provides a strong work incentive and fairness for hard-working tax households. This is not a new concept.

I remind all noble Lords that the proportion of households capped remains low, at 1.9% of the overall working-age benefit caseload. Exemptions from the cap also exist, such as those for households with earnings of at least £617 in an assessment period, and for those who are vulnerable and receiving disability benefits or are entitled to carer benefits. In addition, it is worth highlighting that the national cap of £20,000 is equivalent to gross family earnings of around £24,000, while the London cap of £23,000 is equivalent to gross family earnings of around £28,000.

The two-child limit is based on statistics from the Office for National Statistics showing that, in 2020, 85% of all families with dependent children had a maximum of two in their family; for lone parents, it was 83%. On the latest figures, 62% of households with a third or subsequent child that are in receipt of UC or CTC are not affected by the two-child policy. It is important to support families, but it is also important to be fair to the many working families who do not see their budgets rise when they have more children.

I will come on to some of the more specific points raised. I will see what I can do within the limits on my time.

A question was asked by my noble friend Lord Forsyth, the noble Lord, Lord Shipley, and others about why it is paid monthly. Universal credit is designed to top up earnings from employment, adapting to changes in the amount of earnings received each month. I must tell noble Lords that the department has no plans to change either universal credit assessment periods or payment structures. The current approach reflects the world of work, where the majority of employees receive wages monthly. Paying in this manner will encourage claimants to take personal responsibility for their finances and budget on a monthly basis, which could save households money. Ensuring similarities between paid employment and receiving benefits also eliminates an important barrier, which could prevent claimants adjusting to paid employment.

I cannot say this with utter confidence but I am quite sure that, where claimants are in difficulty and hardship, work coaches can help them. Rather than give information that is not 100% correct, I will write to noble Lords to confirm the additional support for when people are in difficulty.

The right reverend Prelate the Bishop of St Albans referred to the monthly assessment periods. Entitlement to UC is calculated in monthly assessment periods and the amount paid reflects as closely as possible the actual circumstances of a household in each assessment period, including any earnings reported by the employer in that period. Monthly reporting allows UC to be adjusted monthly, which I can only say is better than the tax credit yearly reconciliation. It ensures that, if a claimant’s income falls, resulting in a rise in their universal credit, they will not have to wait several months to receive it.

My noble friend Lord Forsyth raised the whole-month approach. As I have said before, universal credit is assessed and paid on a monthly basis. It is paid in arrears for each month and the amount will not vary to reflect the number of days in the month. To simplify the policy, we took a whole-month approach to changes of circumstance. This is a fundamental design principle of universal credit and is more straightforward for claimants to understand as they can anticipate how much universal credit they will receive, so can budget accordingly.

I come to the work of the work coaches. From all my dealings with them, all the visits I have done and all the times I have spoken to them, I know they are doing a first-class job. Nothing makes their heart sing more than when people get the right support and get into work, and where their payments are made correctly. We have 104 intensive work search claimants per work coach. To meet the demand for jobcentre services, DWP successfully recruited 13,500 new work coaches by March 2021. If any noble Lord wishes to meet a work coach, I would be only too happy to make those arrangements so that they can talk to them and see at first hand what they do. Whether the issue is money, childcare, personal circumstances, domestic abuse or anything else, they stand ready to help our clients.

My noble friend Lord Forsyth and the noble Baroness, Lady Janke, mentioned written warnings. In 2018, we committed to look at processes to give claimants a written warning instead of a sanction, sometimes referred to as a “yellow card”. We have restarted the work to test issuing a written warning instead of a sanction for a first sanctionable failure to attend a work search review. A second proof of concept is testing the operational viability of a warning system, and a further proof of concept is planned for later in the year. Once the proofs of concept are complete, we will assess the results and determine whether a larger-scale pilot is required. On sanctions, let me just say that no work coach or person in the system goes to work with a target to sanction so many people. They go to work thinking, “How many people can I progress today and get into work?”

Many noble Lords, including my noble friend Lord Forsyth, the right reverend Prelate the Bishop of St Albans, the noble Lord, Lord Shipley, and the noble Baroness, Lady Wilcox, talked about advances. For UC, new claims advances are available urgently if a claimant needs support during their first assessment period and budgeting support is available for anybody who needs extra help. Advances of 100% of potential UC entitlement are available urgently. With an advance, claimants receive an additional UC payment, resulting in 25 payments over a 24-month period. We have reduced the normal maximum rate of deductions from 30% to 25% and have made numerous improvements to UC, including ensuring that people get the money they need as soon as possible through advances.

There was reference to the advances creating debt. I think the noble Viscount, Lord Brookeborough, mentioned people who have never been in debt in their life. I understand the delicacy around this, but we are trying to get money to people who need it and for them to repay it, which is not unreasonable, over a period that they can cope with.

My noble friend Lord Forsyth made points about the current system supporting the long-term unemployed to move from one low-paid job to another. Our job is to get people into work, a better job and a career. We are managing to achieve this through our Plan for Jobs programme, with more news to come on the in-work progression system when that works.

I have already talked about the five-week wait. Nobody has to wait five weeks; I can only endorse that again.

We have talked about the benefit cap and the two-child policy. Through everything they have raised, noble Lords have talked about fairness in the system, which I understand. For policy areas that are often open to criticism that are highlighted in this report, such as the benefit cap and the two-child policy, there is always a balance that must be struck between supporting those in need and providing a system that provides a strong work incentive and fairness for hard-working taxpaying households. This is not a new concept and one that we will not change.

A benefits structure adjusting automatically to family size is unsustainable, and the Government have had to take the difficult decision to stabilise our economy and build a welfare system that works for those who use it, as well as those who pay for it. The Government’s view is that providing support for a maximum of two children in UC and CTC ensures fairness between claimants and taxpayers who support themselves through work. I doubt that I could have done anything to placate noble Lords on that issue, but it is the Government’s position.

The noble Baronesses, Lady Janke and Lady Lister, talked about the adequacy of the benefits system. All benefit uprating since 1987 has been based on the increase in the relevant inflation index in the 12 months to the previous September, as happens now. We all know that 3.1% was used this year.

The noble Baroness, Lady Lister, raised the move to universal credit. The pilot scheme that had been active in Harrogate was suspended as the department focused on delivering the Government’s ongoing response to Covid. Ahead of restarting activity around the move to UC this year, we want to ensure that claimants are aware of their entitlements and to support those who wish voluntarily to move to UC to do so. The department will make an announcement in due course on the plans for the move to universal credit. I have no doubt that there will be all-Peers briefings and meetings for us to discuss that.

Baroness Lister of Burtersett Portrait Baroness Lister of Burtersett (Lab)
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Could I ask the Minister about take-up estimates?

Baroness Stedman-Scott Portrait Baroness Stedman-Scott (Con)
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I will write to the noble Baroness on that.

Baroness Lister of Burtersett Portrait Baroness Lister of Burtersett (Lab)
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I asked a number of questions about migration to UC. Perhaps the Minister could write about that as well.

Baroness Stedman-Scott Portrait Baroness Stedman-Scott (Con)
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I will cover that in winding up; I am conscious of the time.

The noble Lord, Lord Shipley, raised food banks. Food banks are independent charitable organisations and the DWP does not have any role in their operation. There is no consistent and accurate measure of food bank usage at constituency or national level.

On third-party deductions, benefit debts and social fund loans can see deductions reduced or deferred as the creditor, DWP, will always try to ensure that government debt is recovered effectively without causing undue hardship.

The noble Lord, Lord Shipley, talked about an impact assessment. The Government recognise that the public sector equality duty set out in Section 149 of the Equality Act 2010 is ongoing. As such, a full equality impact assessment was completed prior to the introduction of the uplift to UC, and it was reviewed and updated prior to the implementation of the temporary six-month extension announced by the Chancellor at the Budget on 3 March 2021.

I have already covered cost of living issues, fully cognisant of the difficulties that people are facing. I have heaps of information here. I try to answer all your Lordships’ questions and to treat the Grand Committee with respect. I do not want anyone to think that I am not prepared to answer questions; I will go through Hansard and through all these questions. I will write, and all noble Lords will get a copy of that. I thank your Lordships for the time you have spent listening to me.

Lord Shipley Portrait Lord Shipley (LD)
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Before the Minister sits down, I would be happy if she would write very specifically on the closure of DWP offices, some of which are clearly closing and not being replaced by alternatives.

Baroness Stedman-Scott Portrait Baroness Stedman-Scott (Con)
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I have an extra few seconds: we are rationalising back offices, and no job centres or face-to-face situations are involved. There is no desire whatsoever for anyone to lose their job.

Lord Forsyth of Drumlean Portrait Lord Forsyth of Drumlean (Con)
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My Lords, this is an unusual experience for me, because I have not found anyone to disagree with. On the fact that this committee is so much in agreement, on 9 March 2021, we did something rather unusual: we had a joint meeting of the Economic Affairs Committee and the House of Commons Select Committee concerned with these matters. We were unanimous in our view, and we took evidence from Mr Couling and the then Minister, Will Quince MP. There was universal agreement, except with Mr Couling, who thought that we were interfering with his perfect system. I think he said that making any changes would make it even more complicated and that he had devised a system which he thought would be around for generations to come. It is a classic example of coming up with a perfect system that everyone has to fit into and then ignoring the problems that occur.

I pay tribute to my noble friend the Minister. She does a fantastic job, and we all know that she is very well aware, from her own background, experience and the care with which she does her ministerial job, of the kinds of problems that arise. We know that the real problem here is the Treasury.

Baroness Stedman-Scott Portrait Baroness Stedman-Scott (Con)
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I could not possibly comment.

Lord Forsyth of Drumlean Portrait Lord Forsyth of Drumlean (Con)
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That reminds me of something from my noble friend Lord Dobbs: “You may say that, but I couldn’t possibly comment”.

I very much appreciate the way in which the Minister responded to the debate, but I know that the noble Baroness, Lady Taylor, has been very patiently waiting to get on with the debate on the excellent Constitution Committee report, so I just thank everyone who has participated. Let us hope that the urgency and severity of the situation means that Mr Couling, the Secretary of State and the Treasury will mend their ways. I beg to move.

Motion agreed.