Social Security Benefits Up-rating Order 2014
Baroness Sherlock Excerpts(10 years, 2 months ago)
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Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of the orders, and the noble Lords, Lord German and Lord Kirkwood, for their contributions. I would like to add myself to the circulation list for this exciting reply to the questions of the noble Lord, Lord German. Is the Minister willing to place a copy in the Library, given that it might be of interest in years to come? They are very good questions.
I share the hope of the noble Lord, Lord Kirkwood, that Parliament retains a sense of the importance of these orders. The decisions taken here by Parliament will affect the living standards of millions of people over the next year. They really matter, and if we ever get to the stage where we stop taking them seriously we will be failing in our duty. I pay tribute to the noble Lord, Lord Kirkwood, who turns out every year, come rain or shine, although I am disappointed that he had nothing to say about the GMP. I look forward to a year when I find something to say to it, but I am not going to ask any questions about it either.
Much has been made of the fact that the Government are uprating pensions by the triple lock. That is welcome as far as it goes. The comments about RPI notwithstanding, will the Minister acknowledge that the triple lock has so far been less generous than the RPI uprating it replaced? It was not used in the first year. I notice that my right honourable friend Stephen Timms pointed out, when this order was debated in another place, that the RPI last September was 3.2%, whereas the pension uprating delivered by the order, as the Minister said, is 2.7%. My right honourable friend said that the triple lock has delivered a lower uprating than the previous formula in each of the three years it has been used. The effect of that is that in RPI terms it is a real-terms cut for the third year in a row.
More concerning is that the standard minimum guarantee element of pension credit is to be increased by only 2%. This reduces both its real-terms value and its value relative to the basic state pension. One of the consequences must be that the poorest pensioners find their pension income falling in real terms. The Minister, I am sure, can confirm that. I would be very interested in the Minister’s answer to the question of the noble Lord, Lord Kirkwood, about cost. If the value of some of these benefits is falling, but the spend is rising, is caseload the reason? I would be interested to know.
The decision on pension credit is significant not just for those currently dependent on pension credit, but potentially for all those who will receive the new single-tier pension, which is due to be introduced in April 2016, if the Pensions Bill currently going through the House receives Royal Assent. The Government have signalled, during our deliberations on that Bill, that they propose to introduce the new single-tier pension at a rate above the prevailing rate of pension credit. By reducing the value of pension credit in real terms, are the Government not giving themselves the option of introducing the single-tier pension at a starting rate lower than might have been the case had pension credit maintained its value in real terms?
Can the Minister help me on another point? As the premiums payable to pensioners with working age benefits will be uprated in line with pension credit rates, does that also mean that they too will face a real-terms cut? Will the Minister confirm that? Also, what assessment has he made of the impact on pensioners with small savings of the Government’s decision to increase the savings credit thresholds by 4.4%, some way above inflation? I know that the Government are keen for people to do the right thing and to save, but the reason for introducing a savings credit was so that people who had put money aside would still find themselves better off than those who had not. Will the Minister explain the Government’s thinking on that?
I also have some questions about process. I am with the noble Lord, Lord Kirkwood: I fear that I may have lost track of some uprating that should have happened. If I tell the Minister what I think is happening, perhaps he will correct me where I go wrong. As I understand it, the Welfare Benefits Up-rating Order 2014 uprates by 1% those on benefits covered by the Welfare Benefits Up-rating Act. The protected benefits are covered by this order. So what happens to tax credits? Where did they get uprated? Where was the benefit cap uprated? I know that it has been, but I am not quite sure where that happened. Also, are all the elements of universal credit uprated in this order and, if so, where are the work allowances uprated? I could not see them.
I have two final questions. First, on childcare, it seems to me that the childcare element of universal credit is not being uprated at all. Can the Minister explain why not? If it is not being uprated at all, that is a significant real-terms cut. The last annual childcare cost survey in 2013 from the Family and Childcare Trust—what used to be the Daycare Trust—found that costs had risen by an average of 6% the previous year, more than double the rate of inflation. If the decision is made to cut that childcare element in real terms, coming on top of the Government’s decision to cut the proportion of childcare costs in universal credit to 70%, will that not have a significant impact on the ability of working parents to afford childcare? There was no impact assessment, and I was not able to work out what the effect of that was. Have the Government made any assessment of the impact on working parents of that decision on childcare and, if so, what is it?
Finally, I should be very interested to hear the answers to the questions from the noble Lord, Lord Kirkwood, on PIP, for example, where I have grave concerns about the implementation. The recent report is not encouraging in that respect. Also, I should like to understand to what extent, if at all, the Secretary of State is using discretion in making judgments about the appropriate levels of uprating, given the concern that abounds now about the use of food banks and the extent of poverty among people who are in receipt of benefits.
Lord Bates
I thank noble Lords for their questions. All Members who have spoken are renowned experts in the field. Until a few months ago, I was joining from the Back Benches in scrutiny of such orders, so I sense the expertise that lies behind the pertinent questions which have been asked. I was particularly struck by my noble friend Lord Kirkwood’s question about how small is the audience for a mere £3.3 billion of taxpayers’ money to go to the poorest in society. That is a worthy point to make, and it would be absolutely ungallant of me to point out the level of participation from the Liberal Democrat Benches and the absence of participation from the Opposition Benches.
Lord Bates
We are a coalition—we share the point. The point is that I think that there is a genuine cross-party support. For example, the triple lock on pensions is welcome, it is working and it is delivering real-terms increases to pensioners.
If I may, I will go through the points raised in the order in which they were raised. My noble friend Lord German raised the question of the Treasury grant to the National Insurance Fund. It is not a question of the National Insurance Fund running out of money. Making provision for such grant has no overall impact on the Government’s finances. It is done primarily for accounting purposes to ensure that the National Insurance Fund complies with the Government Actuary’s recommendation of maintaining a working balance of one-sixth of the expected benefit expenditure in 2014-15. My noble friend was absolutely correct to point out that at least now the information in the forecast is being made available in the Government Actuary’s report. He asked me a specific point about whether we will look at that historically over the 10-year period. I should say that we think that the grant has not been required over that period but, as one of the paragraphs in the probably lengthy letter that I shall be sending to noble Lords, I shall cover that important point and I thank him for raising it.
There was a smart observation asking: why the different dates. They are in place for good administrative reasons, including taking into account the prescribed payment days of different benefits. I know that there might be a follow-up question asking why there are different payment days but perhaps we can just say that that is the answer. However, the noble Lord puts his finger on an interesting point.
My noble friend Lord Kirkwood asked whether we would ensure that working-age benefits will be debated once the Bill is finished. Working-age benefits will be debated again from 2016-17. I will turn to the IFS Green Budget in a minute. My noble friend and the noble Baroness, Lady Sherlock, asked about the uprating of tax credits. The Tax Credits Up-rating Regulations 2014 will uprate certain elements of tax credits by CPI from 6 April. These were laid in draft form on 12 February and are due to be debated later in March. The Child Benefit and Tax Credits Up-rating Order 2014 will increase certain elements of tax credits and the rate of child benefit by 1% from 6 April and 7 April respectively. That was made on 24 February.
My noble friend Lord Kirkwood also asked about how much of the increase in expenditure is in relation to caseload increases. Clearly, caseload is an important factor in the overall expenditure, which is why it is important to make pension spending more affordable over the longer term, including, for example, the changes we are making through increasing the state retirement age. As regards the delay in implementation of the personal independence payment, PIP has been successfully introduced using a controlled approach to learning lessons as we go along in a live environment. We have been very clear that PIP will be introduced in a gradual way. Disabled people have wanted us to take time to get it right, which is what we are doing. Natural reassessment is under way in several areas and we will continue to monitor and evaluate it before making any further decision on widening the reassessment rollout.
My noble friend also asked whether we are going to introduce new eligibility criteria for winter fuel payments. Winter fuel payments are non-contributory and were designed to give older people in the UK reassurance that they can keep warm during the cold weather. The Government intend to bring in an eligibility criterion based on country of residence with payments going to only eligible people living in EEA countries with colder climates. Legislation will be needed to pass this before any changes are made.
On the UC rollout, our current planning assumption is that the universal credit service will be fully available in each part of Great Britain during 2016, having closed down new claims to the legacy benefits it replaced with the majority of the remaining legacy caseload moving to universal credit during 2016-17. Final decisions on these elements of the programme will be informed by the development of the enhanced digital solution.
My noble friend Lord Kirkwood also asked about the Green Budget report written by Paul Johnson and the excellent organisation, Oxford Economics, for the Institute for Fiscal Studies. He suggested that we read the report—it says here that I will do so. I think that I will apply the collective and say that I assure my noble friend that we will do so. It is a very important contribution. We have all said that we want these changes to be evidence based. When serious organisations such as the IFS produce serious research, of course we should take it seriously. We will monitor future developments. I am grateful to my noble friend for drawing that to our attention.
Baroness Sherlock
My Lords, I am very grateful to the Minister for explaining the process and what happens to the different benefits, but I am still chewing over the information that neither the childcare allowances nor the work allowances in universal credit will be increased at all and are therefore facing a real-terms cut. I might have let that go, but I am afraid that I will have to push back on his comment that all sides of the House agree that people will be much better off under universal credit than under the present system. Universal credit is simply a delivery vehicle. Whether or not people will be better off will depend on how generous the benefits are, the taper rates applied, the levels of work allowance or disregard applied and the interaction with other sources of support. In other words, unless the calculations done previously about the gains to work and participation rates in work are redone using these figures, we do not know whether people getting universal credit are going to be better off than they are now.
If the Minister cannot tell me now, could he please write to me later and place a copy in the Library on what assessment the Government have done about the effect on incentives to move into work and gains to work as a result of these real-terms cuts to components of universal credit?
Lord Bates
I appreciate the point which the noble Baroness has made and I was not suggesting that everybody would be better off under this provision. The question is one of removing perceived barriers to go back into work—to encourage people to move seamlessly off benefits and into work—without creating disincentives. That principle, I think I am correct in saying, is one that is widely shared on all sides of the House. How it actually applies and is worked out for individuals and individual families is clearly a crucial matter. On that point, I will add that to the list of issues about which I will write to noble Lords immediately following this debate.
I have already explained that we are spending an extra £3.3 billion on uprating pensions and benefits in 2014-15, enabling us to protect key benefits and vulnerable groups. This order protects pensioners, many of whom have worked hard all their lives and are no longer in a position to increase their income through work, and benefits, which reflect the additional costs faced by disabled people, again reflecting our commitment to protect those least able to increase their spending power. Those are principles which I hope all noble Lords can support and on that basis I commend these orders to the Committee.
Pensions Bill
Baroness Sherlock Excerpts(10 years, 2 months ago)
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Baroness Sherlock
Baroness Sherlock (Lab)
My Lords, I remind the House of my registered interest as the senior independent director of the Financial Ombudsman Service. Amendment 23 stands in my name and in the names of my noble friends Lord Hutton and Lady Drake. In moving Amendment 23, I shall speak also to the other amendments in this group. These amendments may look lengthy but their aim is remarkably precise.
Amendment 23 is very simple. It would retain the power of the Secretary of State to put into place the consolidation of small pots but would remove the part of the sentence that limits this to the “pot follows member” form of consolidation. This sounds technical but really it is not; it is about fairness. As the state is enrolling people into a pension scheme without their explicit consent, surely it has a very high duty of care to them to ensure that the money they are putting aside is not lost through excessive charges or poor investment choices driven by inadequate governance.
“Pot follows member”, or PFM in the jargon, is the Government’s solution to a problem. I shall comment on the problem, demonstrate why I believe that the Government’s proposed solution is flawed and propose an alternative. The Government believe that action is needed to address the large number of dormant small pension pots that arise under auto-enrolment when employees move to new jobs, which they do on average 11 times in their career. We on these Benches agree that action is needed but we do not agree with the form of action proposed. The impact assessment confirms that the Government considered two default transfer options: first, pot follows member, where the small pension pot would follow the member to their new employer’s pension scheme; secondly, an aggregator scheme, where small pension pots would be transferred to an aggregator, such as NEST. The Government had two options but I believe that they chose the wrong one. However, I do not propose to substitute my judgment for that of the Government; rather, this amendment would simply increase the choice available to them. As it stands, Clause 32 allows only for pot follows member. Our amendments would enable the possibility of the Government using an alternative default aggregator model without the need for new primary legislation.
I would like to set out the context. The core issues of trust and confidence are still centre stage in getting people to start, and continue, saving for their retirement. This Bill, and auto-enrolment itself, should give people the confidence they need to save for their old age, but how can we demand that people save if they do not trust the savings vehicles and do not trust the pensions market as offering value for money? The pensions market is not a typical retail market where the consumer chooses the product. Under auto-enrolment, the consumer does not choose the product; the employer does. The only choice for the employee is either to stay in or to opt out and lose the employer’s contribution to their pension. There are also many intermediaries in the pension supply chain. Pensions are complex products, lacking transparency. While many large employers may have the resources to pay for good product advice or assessment of fund performance, SMEs may not. The demand side is weak.
Lord Freud
I can confirm my noble friend’s question—or I can give the answer to confirm it.
At this point in time, when we are just starting out with automatic enrolment and successfully getting people saving for the first time, we need to make it as easy as possible for them to build their pension. We need to use inertia in the right way. That means moving a small pension pot to the current live pot where the individual can see it growing, rather than sending it off to a scheme with which the individual has no engagement and in which they have no interest.
Now is not the time to break the link between the individual and his or her employer. Automatic enrolment is going well, with 3 million individuals newly saving and less than 10% opting out. It is reinforcing the workplace pension as a key element of the benefit package that employers offer their staff after decades of decline in occupational pensions.
I have heard the argument that these amendments are designed to give the Government another option, which appears on the surface to be a generous approach. Providing the Government with greater flexibility is one thing, but listening to the debate today, I suspect that few on the Opposition Benches want the Government to have the flexibility to chose anything but the aggregator model.
In practice, the amendments will leave us in limbo and bring back uncertainty at a time when industry is beginning to get behind, and position itself to deliver, pot follows member. As my honourable friend in the other place announced on Monday, officials are currently exploring the feasibility of using HMRC’s PAYE data and system to help us to deliver a secure, efficient and straightforward pot-matching element to implement the process.
In response to the assertion of the noble Baroness, Lady Sherlock, that pot follows member would be hard to set up, we have recently had some very positive workshops with industry representatives and HMRC. The model is already inspiring some exciting and innovative approaches to transferring money with an employee as they move jobs. The cost of the transfer was specifically mentioned by the noble Baroness, Lady Drake. It will be the same for an aggregator as for pot follows member. Altus has challenged the claim that pension transfers are too hard and too expensive by stating that transfers for ISAs and funds cost £1 or less, and that this can be replicated for pension transfers.
After two years of discussion and debate on this issue, even if we cannot agree with the Opposition on the right delivery model, I hope that we can agree that we need to take a positive step forward. On the “pause to reflect” point made by the noble Lord, Lord Hutton, I do not believe that we are rushing into this measure. We first consulted more than two years ago and followed up with two policy papers. We also held extensive discussions with industry and consumer groups within that period. I urge the noble Lords to withdraw their amendment to allow us to work together, and work with industry, to make automatic transfers a reality.
Baroness Sherlock
My Lords, I thank all noble Lords who have contributed to what has been another classic House of Lords debate. I particularly thank my co-signatories to this amendment, my noble friends Lord Hutton and Lady Drake. The Minister referred at the outset to a pantheon of pensions expertise, and indeed it has been. The noble Lord, Lord Bates, joked in Grand Committee that the Pensions Commission was almost quorate since two of its three members were gathered there. I say to the Minister, as I said then to the noble Lord, Lord Bates, that if I were sitting where he was and this pantheon was sitting opposite me and telling me that I was wrong, I would be pausing, just as my noble friend Lord Hutton suggested.
A number of arguments have been made today. The Minister says that the Government have been discussing this for two years but this House has not. When we discussed it in Grand Committee, I do not recall hearing a single supportive speech for pot follows member. I am glad that the researchers of the noble Lord, Lord Stoneham, moved him from his position then to the position that he articulated so clearly today, but I do not think that anyone in this House has heard those arguments made until today. I am glad that we have heard them, and very glad that the Minister has been doing work with the industry to get it ready to deliver what will be this Act. However, it is still a Bill; it is not an Act and this House has every right to make its own decisions. Whatever decisions Parliament makes, I have no doubt that at that point the Minister and his colleagues will go out there to deliver.
What arguments have we heard today against our enabling amendment? First, we have heard that it is not clear what the choice is. Well, that is the point: the amendment says to the Government, “Go back and think again. We will work with you if necessary, but think again”. It is said that there will be a delay. Yes, there will be a delay, but the wrong thing would be to rush ahead and make a decision because you want it now, if the consequences would be very serious because it is the wrong decision. This is too serious to rush into. A lot of criticisms have been made so far. For example, the Minister says that the way in which this amendment is constructed would leave the choice of the aggregator with the outgoing employer. If the Minister looks again at Amendment 23J, he will find in fact that it says that regulations may do one of two things. There is a big “or” between the two; it is either push or pull. Everything about these amendments is constructed to say that we recognise there are choices to be made but think that the Government have not given enough thought to what should be the right way forward for consumers.
We have heard nothing to counter the arguments made across the Benches here. What about all those who leave employment? What about the self-employed, who make up the fastest-growing sector: where do their pension pots go? What happens to the pension pot of the seasonal cricketer mentioned by the noble Lord, Lord Turnbull? I am sorry, but I live in Durham and our cricketers are mostly in the England teams, so I cannot advise him there. However, I can tell him that that person would really struggle under pot follows member. What about all those people in mini-jobs who will find themselves in a position of not having a single employer? Much has been said about the relationship between employer and employee, but the truth is that every model of pension scheme struggles with employee engagement. As the noble Lord, Lord Flight, pointed out, the whole point of this is that it addresses only the position of those who make no active choice themselves, yet those are the people to whom the state owes the greatest responsibility. These are the people whose funds we are moving, without their explicit consent, from one employer to another.
Much has been made of the fact that we want all the schemes to be of the best quality, but let’s get real—the OFT has already said that the market is not working. The noble Lord, Lord Turner, has described the challenges they found: people are learning when they come to retire that between 25% and 40% of their pension pot has gone in charges. If the Government really are committed to tackling charges I would invite the Minister to intervene again and to give a proper answer to his noble friend, the noble Lord, Lord German, about when the Government will cap pension charges. If he will not tell us now, I have a very simple solution for him—he can vote for our amendment in the next group and cap the charges tomorrow.
Lord Freud
I really do need to take up the invitation. I think that we have made it clear that we will deal with this within this Parliament, which I think means by a date some time in May. I think that that is fairly clear.
Baroness Sherlock
It is interesting, my Lords. What has happened—without wishing to pre-empt the next debate—is that the Opposition pushed the Government to do this but the Government said that it was not necessary. The Minister then went out to consultation and suddenly seemed to get cold feet, and he put it on hold for a year. There is a very small window but I am delighted to hear it. But the Minister can vote for our amendment and need not wait. The Government are again being invited to do it, and my noble friend Lord Hutton has very powerfully made the case for why they should.
I have been careful to try not to put my personal preference in the proposals, but I would be happy to join the Minister in a proper cross-party, consensual discussion about the way forward. The Labour Party introduced auto-enrolment and I pay tribute to the Government for taking it forward. We all share a common objective: to get as many people as possible saving for retirement. They can do so only if they have trust and confidence in the pensions market and in the schemes they are investing in. If they do not have that confidence they will not save and we will all be the poorer. The best way to do it is to ensure that there are schemes in which people can have confidence. I believe this is the right way forward and I wish to test the opinion of the House.
Baroness Sherlock
“Review of provisions
Within one year from the date of enactment, the Secretary of State shall, following the completion of a public consultation, lay before both Houses of Parliament a report assessing the impact of the provisions contained within this Bill on the following—(a) current and future recipients of the state pension;(b) members of private pension schemes;(c) women born between 6 April 1951 and 5 April 1953;(d) the level of knowledge among young people of state pension entitlement and private pension provision; and(e) such other matters that the Secretary of State for Work and Pensions and the House of Commons Work and Pensions Committee deem relevant.”
Baroness Sherlock
My Lords, Amendment 41A in my name and that of my noble friend Lord Browne calls for the Secretary of State to review and report to Parliament on the impact of the Bill on specific groups. I recognise that the department undertakes research, but this amendment picks up on something slightly different: the impact on specific groups about which concern has been expressed during the passage of the Bill through Parliament, or where provision is in effect a work in progress.
This is a major Bill that will have a significant impact on the majority of our citizens—indeed, on pretty much all of those who have yet to reach state pension age. If the Bill proves to be even half as good as the 1948 Act, it may be in place for a long time. The amendment calls for reviews of provisions made in the Bill to check that we have got it right and to enable us to make any necessary adjustments for those who are unfairly disadvantaged, or where provisions seem not to be working as we might have hoped.
Paragraph (a) of the proposed new clause calls for a review of existing and future beneficiaries of the state pension scheme. When there are winners and losers we should review that to make sure that we have got the balance right. We should also include within the review an assessment of whether transitional arrangements are adequate and working.
Paragraph (b) relates to the operation of private pension schemes. Given the debates this evening, I hardly need detain the House further by sharing our views on whether the private pensions system is working well; I think that we all know that there are challenges. Some of the changes that are needed, such as to the annuity market, may well need primary legislation, but many will not. The review will take the opportunity to look at whether the various changes, legislative or not, which the Government have made and promised, are working effectively.
Paragraph (c) relates to the concerns expressed by many women born between 6 April 1951 and April 1953. I am sure that all noble Lords have had many communications from women in that category who are affected. In Grand Committee, the Minister was pressed by various noble Lords, including my noble friend Lady Hollis and the noble Lord, Lord Paddick, to be clear as to whether or not this cohort of women would be better or worse off under the new system. The assumption of the Government is that they will be better off, but I never got a satisfactory response to the question I posed in Committee as to why the Government think that women born between 1951 and 1953 are better off under existing arrangements, and yet also claim that women will mostly be better off under the new pension arrangements. I still do not quite understand how both can be right. The amendment asks the Government to report to Parliament on the actual impact of these provisions, rather than simply relying on analysis of what the impact is likely to be.
Paragraph (d) focuses on the need for a review of the knowledge of young people of the system. Young people currently face a challenging work environment with high youth unemployment, the potential for high debts if they go to university and astonishingly high rents. We may safely conclude that, for most of them, concern about living in poverty in their dotage is not chief among their concerns, so a call to start contributing to an auto-enrolled pension may not ring loud. Yet that is of course the very best time to address those concerns.
Better financial education is needed, coupled with information about the importance of providing in future for their retirement. We owe it to young people to encourage them to consider making pension provision as soon as they are able to do so. This amendment seeks to keep track of the Government’s strategy to ensure that our young people are armed with a greater understanding of the need to proactively engage with pension decisions.
This is a far-reaching Bill and we should therefore make sure that we have got it right. Paragraph (e) of the proposed new clause recognises that the Select Committee, and indeed the Government, may identify other matters that should be reviewed and reported to Parliament.
The principle underpinning the Bill is that people should have a state pension that is simple to understand and that they should take responsibility for saving for their old age through work-based pensions. We also need to have it acknowledged today that the state owes a duty of care to the large numbers coming under auto-enrolment. In light of the broad consensus that industry must improve its standards and reduce its charges, its progress towards that should be monitored by Parliament. The amendment sets out a method of parliamentary scrutiny to ensure that we have got it right and that the Pensions Bill will last us, as the Minister aspires, for decades to come. As there will be an election before enactment—and, of course, a change of Government, one hopes—the amendment is prudent. I recommend it to the House. I beg to move.
Lord Freud
My Lords, I do not think that anyone in the House can be under any misapprehension but that the Government value extremely highly the role of evidence, analysis, consultation and evaluation in policy-making. Our approach to designing this once-in-a-generation package of pension reforms has been heavily informed by a robust and wide-ranging evidence base. However, looking at the text of the amendment and its timing, I must make clear that the provisions on the new state pension, and many of the other provisions in the Bill, will simply not have been commenced by spring next year—the time used in this amendment. Therefore, all that would come out of such an amendment would be a rehash of the information that has already been provided to Parliament: there would be nothing to add. We have no particular objection to this amendment in terms of sentiment, but its timing is just not appropriate.
I will not spend a lot of time going through all the issues, which we have gone through in huge detail over the past weeks and months. However, I will touch on how we will monitor the impacts in the future and what the plans are. It is clearly imperative, as the noble Baroness said, that a set of reforms of this nature is accompanied by a strategic approach to monitoring at sensible intervals. I am not saying anything that noble Lords will disagree with when I state that pensions is a very long-term policy area, and that the impact of many measures will not be felt fully for decades.
As a society we are asking people to do more to think ahead and plan for their retirement. As a Government it is our duty to do the same in looking at the retirement outcomes of the population as a whole. Our retirement outcomes framework, published in September 2013, provides an overview of projected future retirement incomes, looking at the impacts of government pension reforms as a whole and across state and private systems.
Lord Freud
I am happy to make sure that we itemise those in a way that will help noble Lords keep an eye on what they need to monitor as we go along.
We will update the modelling as evidence becomes available on the impact on work and saving of automatic enrolment, the single-tier state pension, and state pension age changes. As noble Lords will know, the department conducts a six-monthly tracking study of attitudes and behaviours in relation to pensions, later life and automatic enrolment. A similar exercise will start after Royal Assent, to monitor awareness and understanding of the reforms.
We are committed to the principle of post-legislative scrutiny, but such scrutiny must have scope to provide insights beyond the impact assessment and consultation practices to which we are already committed. I know that the noble Baroness accepts the point on timing, but the timing of this amendment would not add materially to the powers of the Work and Pensions Select Committee. Indeed, there is an awkwardness about the timing, because it straddles the next election. However, we look forward to continuing to develop pensions strategy with that committee’s input.
I know that the noble Lord does not appreciate my asking for the other side to withdraw this amendment and not press it to a vote, but that is the position I am in. Maybe there is more warmth to my request than there has been this evening.
Baroness Sherlock
My Lords, that would not be hard. I thank the Minister for that response, and I thank my noble friend Lady Hollis for pressing him for more detail on how this will be monitored in future.
I am very grateful to the Minister for setting out the Government’s commitment to post-legislative scrutiny and for setting out his commitment to making sure that the impacts of the Bill are analysed carefully, and with the use of evidence. I will press him to do two things. The first is to give particular attention to the two groups mentioned by my noble friend Lady Hollis. The women born from 1951 to 1953 feel very strongly that they have missed out on something important with this. If the Government turn out to be right, and they are better off under the current system, it is important not just that the Government find that out but that they share that knowledge as widely as possible. If that is the case, those women will be reassured—and, if not, they have a right to know anyway. Can the Minister also look at the position of those who would have been affected by, for example, the removal of derived rights, and whether the transitional protections are working well for them?
Secondly, as well as all the work that has been done to an appropriate timescale, will the Minister give some thought to how that might best be shared with the House? The proceedings have been very good as the Bill has moved through Parliament. A lot of issues have been raised—in this House in particular—and a lot of expertise has been brought to bear on this, and we have all learnt a lot from the process. Having done that, rather than have the results of it disappear into the department, marvellous as it is, it would be helpful if they could come back out so that we can all learn from that, both for the Bill and for future legislation. However, I will take his assent to those marvellous suggestions as read, and on the basis of that—and because he asked so nicely—I beg leave to withdraw this amendment.
Pensions Bill
Baroness Sherlock Excerpts(10 years, 2 months ago)
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Baroness Sherlock (Lab)
My Lords, I am not surprised, having sat through Committee, that this has been such a powerful debate. We have had some very important, moving and well informed speeches at all stages of the Bill touching on these subjects. I am very grateful to the noble Baroness, Lady Finlay, and to the noble Earl, Lord Listowel, for sharing their expertise in these areas, as well as to the noble Lord, Lord Rix, for being willing to share with us the experience of bereavement and its ongoing impact on one’s life at any age.
My noble friend Lady Hollis laid out the case very strongly at the outset. I am delighted that the Minister is interested in reviewing the impact on families with a distressed child and how that relates to conditionality in the future. It is an excellent commitment and I look forward to seeing the results of it. It is up to my noble friend Lady Hollis to make a judgment on this but I do not think that that in any way precludes the need for this amendment, which is about a very specific category of person—people who are bereaved and who may find themselves going on to claim universal credit but who would normally be expected to go out to work because they had children of school age. Both of those things are important.
I still have with me the very powerful speech made by the right reverend Prelate the Bishop of Derby at Second Reading, in which he laid out his experience of pastoral care for the bereaved, something reprised very effectively today by the right reverend Prelate the Bishop of Wakefield. I do not need to say very much more about why this matters. Many Members of this House have had experience of bereavement in one way or another and there can be few more important issues than how a country supports its citizens when the worst of all possible things happens to them.
The Government’s case throughout this debate has been that these bereavement reforms are not really about money. From 2016 to 2020, they estimate the changes will cost an extra £110 million, because they will protect payments under the current system, but that thereafter, in total, there will be small savings. The argument is that these are reforms not cuts. The Government have said throughout that they want to simplify the system and put resources where, in their view, they are most needed: as a short-term intervention to allow a bereaved spouse or civil partner to deal with the immediate costs of the death of a partner. If support is needed in the longer term, that is what universal credit is for.
Amendments 18 to 20, in the name of the noble Baroness, Lady Finlay, address the question of how long bereavement support should be paid for. In Committee, the noble Baroness laid out some very moving circumstances in which families could find themselves, clearly drawing on her own clinical experience. I know that the Minister expressed sympathy with what she said, and it may be that his review of distress will address that. I would be interested to see what he has to say when he comes to speak.
Amendments 2 and 21, in the name of my noble friend Lady Hollis, quite specifically seek to relax the work conditionality requirement for those in receipt of bereavement support payment. This is particularly important for widowed parents. There is a difference between those who do not want to work and those who would like to work, or go back to work, but who have been forced to recognise that the reality of the state that their children are in is such that they have to choose—of course they will choose their children and not work, unless they have literally no choice. Some parents will need a longer period, both to adjust to their own grief and shock and to deal with the grief and shock faced by their children.
It has already been pointed out that the regulations for universal credit mean that kinship carers are exempt from work conditionality for a year from the time that they assume the care of the child. This was agreed by the Minister—under the persuasive pressure of my noble friend Lady Drake and others—in recognition of the fact that adults need time to adjust to being, effectively, a single parent. Why should the same principle not apply to bereavement? I would be very interested if the Minister could answer one question about his review: does he intend to change the regulations to allow bereaved parents specifically to be exempt from conditionality? In Committee, he said that he was reviewing this and that he wanted to change the guidance given to decision-makers in jobcentres. But that is a very different question altogether. I can see why that might be the way forward for distress in general—after all, distress comes in very different forms and some judgment would have to be made about when the family was distressed. The awful thing about bereavement is that it is horribly clear: one is either bereaved or one is not, and I therefore do not think there is a need for the kind of flexibility that might be needed in other circumstances.
I also worry because I have heard many cases, as I am sure other noble Lords have, where young jobcentre officials, with the best of intentions, ended up making bad decisions because they did not properly understand what it was like to be a single parent trying to juggle more than one child and a part-time job. That person could of course simply say, “I am sorry but despite whatever you say, I am not going back to work because I have to prioritise my children”. If that happens, their benefits get sanctioned. They can appeal, but do we really want them to have to go through that six months after losing their husband, wife or civil partner? When 58% of appeals against sanctions on jobseeker’s allowance are successful, how much are we willing to bet the farm on the effectiveness of decisions by individuals in jobcentres? In my case, it would be not very much.
At Second Reading the noble Lord, Lord German, used words such as “harsh” and “cruel” to describe the decision to force widowed parents back to work after six months. I believe that he was right. He cited the research, which he touched on again today, showing that outcomes for children very much depend on the effectiveness of the remaining parent in coping. That is partly about their availability to children. All that this amendment from my noble friend Lady Hollis does is to ask that those widowed parents who need to claim universal credit alongside bereavement support payment to make ends meet should not be required to go back to work for 12 months. After all, the Government have decided to focus their support on that first 12 months, so surely they should be willing simply to stretch this for the same period.
I have heard it said that a year is too long: since employers do not offer bereavement leave for a year, why should the state? It is because employers cannot do that that so many parents end up giving up their jobs when they lose their spouse or civil partner. The combination of burdens is simply too much to cope with. Universal credit is meant to be the safety net for those very parents, and it must be here. This amendment specifically recognises that the Government are planning to recycle all the resources spent on bereavement to be able to create this new system. All it does is to give them the power to recycle that money in whatever way they want, such that that reform should include this small change—that for 12 months after losing one’s husband, wife or civil partner a parent should not be forced back to work.
We should be clear that a decent society will not put bereaved children in the position of having lost one parent only to find that the other is not able to give them the level of care that they need at this crucial time. Many people in this House will know that losing a parent in childhood is a life-changing event: one never gets over it. We cannot protect children from that horror but when it happens, please let us at least say that we will support the remaining parent as best we can. It is clear that this House does not think that the Government have got this part of the Bill right. Amendments 2 and 19 give them the means and the incentive to go away and get this right. I urge the Minister to accept them.
Lord Freud
My Lords, losing a spouse is one of the most tragic circumstances that a person will have to endure and, as such, it has been recognised since the outset of the welfare system that the bereaved need some financial assistance. Bereavement benefits form a crucial part of state support but limited reforms over the years have led to a complex system, which has not kept pace with changes in the benefit system or wider changes in society. This legislation will address this. With a simple payment structure focusing support on the period immediately after the bereavement and a single contribution condition, the new bereavement support payment will be far more easily understood and claimed. It will mean that more people will benefit, particularly younger widows.
A claim to the new bereavement support payment is made by the surviving spouse or civil partner. The noble Baroness, Lady Finlay, raised those extremely tragic cases where not only is there one bereavement but the surviving spouse dies shortly afterwards. She is of course right that there can be no expectation that a claim is made by the surviving spouse in such circumstances. I take this opportunity to make it absolutely clear that, as with the current benefits, there will be arrangements in place for claims to be made posthumously. Every year, the Department for Work and Pensions receives around 10 posthumous claims to bereavement benefits made on behalf of a bereaved spouse who has subsequently died. There are regulations to ensure that appropriate payment can be made in respect of these claims.
Pensions Bill
Baroness Sherlock Excerpts(10 years, 2 months ago)
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Baroness Turner of Camden (Lab)
I support my noble friend Lady Hollis on this amendment. I am sorry that the noble Lord, Lord McKenzie, is not here to second it, The Government have had a long-term policy—they kept telling us about it at every stage of this Bill—of being in favour of people saving for themselves in addition to having the pensions provided in the Bill. They expect people to save for themselves and they regard the pensions provisions that they are making as a kind of platform from which people can then make savings for themselves.
How are people to save for themselves if they do not have the necessary information about what their entitlement is? The amendment addresses the entitlement to a pension statement and notification of entitlement to a statement. All that is very necessary if people are to make sensible arrangements for their retirement. I am amazed to think that the Government may not accept this amendment. I hope however that they will because it is in line with their own thinking on the Bill. They want people to save. How do they expect people to save if they do not know what their entitlement is? They have an obligation to tell them what it is. Certainly it happens in the private sector; I belong to a private pension scheme and I get a regular statement as to what my entitlements are. Why can that not be the case for people who are receiving state benefits?
Baroness Sherlock (Lab)
My Lords, my noble friend Lady Hollis has raised some significant questions and I look forward to hearing the Minister’s answers. This amendment follows an ultimately rather unsatisfactory discussion we had in Committee during which my noble friends Lord McKenzie and Lady Hollis, along with the noble Baroness, Lady Greengross, and others tried valiantly to get the Minister to explain exactly when somebody would receive a communication from DWP to warn them that the state pension they would get in future would not be the same as what they might have expected. I went back and reread the record. I think the answer we got was that they would get a statement if or when they asked for it and then normally only digitally. The Minister kindly arranged for officials to explain their communications strategy to Peers, and I am genuinely grateful for that. However I think it is fair to say that the exercise did not entirely allay our fears or perhaps fill out all the gaps in our knowledge. I hope the Minister is looking forward to finding a consultancy fee for my noble friend Lady Hollis for her contribution to what will doubtless be the next mailshot from the department.
In Committee I raised comments that had been made during the Select Committee inquiry and elsewhere from quite a wide variety of bodies about this subject. It is worth highlighting a couple. Citizens Advice has been stressing that considerable complexity inevitably remains in the system because of the transitional provisions. It says that,
“a sustained communications programme could improve outcomes, manage expectations, minimise misinformation, promote action on NI contributions, and support personal saving for retirement”.
That last point is one made by my noble friend Lady Turner. The Association of British Insurers had also stressed that adequate communication was essential because it was important that people did not feel unclear about how much they would receive, and it should be clear that they would need to save. That is a crucial drive behind all of these reforms and the Labour reforms that preceded them. People need to understand what they are going to get to make sure they save enough for their retirement.
The Select Committee certainly found that there was a lot of confusion out there. Many people thought that from now everybody would get £144 a week instead of the current state pension. Many people thought that all means-testing would disappear and that if they would have got more than £144 now that they would lose that in future. The committee stressed how important it was that people have full information about their future entitlement.
I reiterate three simple questions which I raised in Committee; they did not get answered at the time but I think the Minister has had an opportunity since then to reflect on them. First, how and when do the Government propose to contact people to tell them of the changes to their entitlement? Secondly, at what point will the Government contact people who have previously requested and received a pension statement to warn them that it may no longer be accurate? Finally, in setting up a communications campaign on this new scheme, what outcomes are the Government seeking and how will they measure them? I look forward to the Minister’s reply.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, the single-tier pension reforms are designed to simplify the current state pension system, to make it easier for people to understand what they will get from the state in retirement. More so than for other reforms, therefore, communication is critical to success, so I certainly share the interest that noble Lords have shown in this issue. Effective communication requires both the right message and the right channel for delivering that message. This forms the basis for our communication strategy to support these reforms, a summary of which I circulated to noble Lords this morning and which will be placed in the Library.
We will deliver a phased approach to our communications, building from Royal Assent towards the implementation of the reforms and beyond. This will allow us to provide accurate and up-to-date information as quickly as possible before we issue more tailored communications through a range of channels to reach all our audience groups.
State pension statements will remain a key communication with future pensioners and will be an important vehicle for helping individuals understand how they are affected by the reforms. The introduction of these reforms gives us the opportunity to radically transform the way we currently provide this statement service. Our ultimate vision is to provide an online system that is integrated with HMRC’s national insurance data, enabling people to access this information at a time to suit them and in a way that allows them to model the impact of gaining further qualifying years.
In Committee I said that we would provide statements that reflect the single-tier rules once we have the new IT in place and individuals’ NI contribution records are complete up to and including the 2015-16 tax year. Prior to April 2016 our plan was to continue to provide statements based on the current rules accompanied by additional information on the single-tier changes to those affected by the reforms. However, we believe there is trade-off in terms of providing information we have available based on current system amounts while trying to minimise the distribution of information that is potentially misleading or simply begs further questions. Noble Lords may wish to note that we are therefore currently reviewing the information we can provide to customers prior to April 2016 to ensure that it is as accurate and helpful as possible. We will make a decision on this by the end of March when we will make our plans more widely known through discussions with our stakeholders and within our broader communication materials.
The noble Baroness, Lady Sherlock, asked when we might contact previous recipients who will be affected by the changes. We will consider this to be part of the process. It is important to note that our data retention rules mean that our statement IT systems hold only a limited number of historic requests going back a maximum of 18 months, and therefore we cannot contact all previous statement recipients. The statements make it clear that the estimates they provide are based on the current rules and may change if individual circumstances alter or the law changes.
Baroness Sherlock
My Lords, although we gave this a fairly good airing in Committee, I confess that I do not yet feel that I properly understand the nature of the Government’s objections to the taking of lump sums. My noble friend Lady Hollis explained her case for this, and there is no doubt that we have a crisis of savings in this country. Too many people do not have a safety net for a rainy day, and British households generally do not have enough money in savings. That amount has been falling in recent years—unsurprisingly, given the pressures on the cost of living. The case made by my noble friend about why people might need access to a lump sum deserves an answer from the Minister. She described when and why the option was introduced and what people might use it for.
However, having gone carefully over the record and the correspondence since, I did not get answers to some of the questions which I put to the Minister in Committee. Those answers would help me because I would like to understand two things. First, are the Government confident that they have worked through who will be affected by this, what the impact will be and what the alternatives are? Secondly, can they explain clearly why they are doing it? On the first point—and I did ask this—we know that 75% of those who are deferring are women, but do we know why?
My noble friend suggested in Committee that those people are waiting until their partner retires to claim their pensions. Have the Government been able to confirm whether that is why they are deferring, or are they deferring because they are still working and have not saved enough to feel able to retire? What do we know about the wealth of those who are deferring their pensions? These questions matter because they would go to the points made by my noble friend Lady Hollis about whether people without savings are going to end up accessing other forms of credit, which we would not want them to do as they may be problematic.
Most of all, I would like to understand what the Government’s objection is. We have had a few arguments made: the argument of simplicity was made and has been pretty well dispatched, so I will not revisit it. Another argument raised was that significant numbers of people deferring and claiming a lump sum are living overseas. However, we know from the data given to us that more than three-quarters of those people are living in the UK, so that is probably not the issue. Is it the administrative burden? Perhaps the Minister could tell us whether it is that or simply the cost.
If it is the cost, I understand that. If the Government’s argument is that the costs are significant, the House, I am sure, will listen carefully. However, it would be helpful at this point if the Minister could simply come out and say whether he would like to do this but cannot afford it or whether the Government think for some reason that it is a bad idea, in which case my noble friend Lady Hollis has laid down a strong challenge which the Minister really should answer.
Lord Freud
My Lords, in designing the single-tier reforms our overriding aim has been to deliver a flat-rate pension above the basic level of the means test without increasing spending, and to do so in a way that recognises people’s contributions under the current system. This is not easy to do and it involves difficult trade-offs. Some elements of the transition necessarily generate costs in the early years, particularly the “better of” calculation, which means that people with low amounts of additional state pension, such as carers, receive a boost. There is also the fact that those with high amounts of additional state pension, which take them over the full amount of the single-tier pension, are able to keep the surplus as a protected payment. Nevertheless, we have been able to stay within 1% of projected expenditure until 2040, which is fair to current pensioners and to future taxpayers.
In answer to the blunt question of the noble Baroness, Lady Sherlock, removal of the lump sum option for those who defer their state pension has played a key role in flattening expenditure. The early-year savings that this delivers have been ploughed back into the single-tier design. We are, however, still keen to preserve some flexibility for single-tier pensioners who, by choice or accident, claim after they reach state pension age, so people will still be able to build up an increase to their state pension that is paid on top of their single-tier entitlement for the rest of their lives. As discussed in Grand Committee, there remains the option of backdating a claim for a single-tier pension. By backdating their claim to a state pension, someone who has delayed claiming for whatever reason—either unintentionally or as part of a planned retirement—will be able to get up to 12 months’ arrears when they make their claim for a pension. This would provide someone who has qualified for the maximum weekly amount of £144 with arrears of almost £7,500 at 2012-13 prices.
Pensions Bill
Baroness Sherlock Excerpts(10 years, 2 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, I am aware that the noble Lord, Lord McKenzie, cannot be present today for personal reasons. Given the circumstances, I should be happy to have further discussions with him about his Amendment 7.
Baroness Sherlock (Lab)
My Lords, I know that my noble friend would wish to bring back his amendment at Third Reading. Would that be okay with the Minister?
Baroness Sherlock
My Lords, in speaking to Amendment 16, I shall also speak to Amendment 17 in my name and that of my noble friend Lord Browne. We on these Benches agree with the principle of raising the state pension age to reflect longevity. We accept the need for periodic reviews of the state pension age. Where we differ from the Government is on how best to do that.
Fixing the state pension age is never easy. There is always an issue of fairness at stake. Having a careful, evidence-based review before taking any future decisions on changes to the state pension age is a crucial element of ensuring fairness between generations. However, sometimes fairness requires a consideration of difference, particularly differences in longevity and health. The Government are setting considerable store by actuarial information on average life expectancy. However, while average life expectancy tells us something—mostly quite a lot about medical advances and their ability to keep us alive for longer—it does not tell us very much about our health in retirement or differential mortality rates.
We heard a great deal of evidence in Committee to inform our debate, and I certainly will not rehearse it all here, noble Lords will be relieved to hear. However, maybe the headlines are worth briefly restating. People are living longer, but the proportion of years in full health is not keeping track at the same rate. We have significant inequalities in health within the UK, and significant variations in mortality as a result. There are clear socioeconomic differences. There is a class divide, as managerial and professional classes live longer than manual workers by 3.8 years for women and 3.1 years for men. There is a clear geographical divide.
There is then the effect of this differential life expectancy on state retirement incomes, with the irony that those living the shortest lives post-retirement—the poorest and least skilled workers—will receive less in state pension than their better-off counterparts, but they may well have contributed for longer as a result of having spent less time in education.
If we want people to save for retirement, they need to trust the Government, to trust Parliament and to believe that their pensions are safe in our hands. The public need to know that they will not be at the mercy of political expediency, and that they will be protected from any adjustments that need to be made by ensuring that they are not made too quickly. Rather than simply being a matter for the Secretary of State, as the Bill proposes, we need a genuinely independent panel which has the kind of cross-party and independent representation that will reassure the public and give confidence to parliamentarians from across the spectrum. Our amendment proposes simply that the review body should include representatives of the opposition parties and of the Cross Benches of this House to ensure that Parliament as a whole is at the heart of this process. It would also include representatives of trade unions, who are themselves the representatives of those who are spending their ever-longer working lives saving for retirement. This broader representation will give people confidence that a wide range of views will be heard. I urge the Minister to accept it.
Lord Freud
My Lords, as your Lordships know, the purpose of the review of state pension age is to inform the Government. The reports from the Government Actuary and the independently led review, which will feed into the review, should collect and analyse the latest data, and give the Government of the day the information they need to make what will always be a difficult and contentious decision.
We are all keen that the Secretary of State receives a report that is impartial. Because we are requiring that all reports compiled as part of the review are published and all future changes to state pension age continue to go through primary legislation, any proposal based on a report that is not impartial, credible and comprehensive will quickly fall apart when scrutinised by stakeholders and both Houses of Parliament.
Turning first to the substance of the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, if one thing is apparent it is that there is no clear consensus on who should sit on the review, what they should look at, or how they should collect the necessary evidence. We have been clear in Grand Committee and in the other place that this Government’s vision of the review is one similar to the independent review of public service pensions. That review was run by the noble Lord, Lord Hutton, a member of the opposition Benches and an expert in his field. It was transparent, comprehensive, independent and established a consensus.
Noble Lords will also be aware that the Pensions Commission, set up by the previous Government, had three commissioners from the areas of business, trade unionism and academia: not a single politician or Cross-Bencher. That commission gained support through comprehensive and open debate about the issues and trade-offs, rather than being based on the inherent characteristics of the commissioners’ backgrounds.
In short, the amendment tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord Browne, would preclude these two successful models. It would result in a body of at least six individuals from stakeholder groups, the other place and this House. It would not necessarily have the expertise to review the relevant data and would effectively create a mini parliamentary process before the parliamentary process proper. We do not think that is the right way to run a review designed to inform the Government. In the Bill as currently drafted there is nothing to prevent a future Government running the review in whatever way they think best. That is a key point underpinning our approach to the review—getting future Governments to take active ownership of and responsibility for all aspects of the review, instead of just going through the motions.
Turning to the factors to be considered as part of any review, I must note that in response to the recommendation made by the noble Baronesses, Lady Turner and Lady Sherlock, we do not have the data regarding the relationship between specific occupations or types of work and life expectancy and healthy life expectancy. Beginning to collect such data would be both burdensome and, I imagine, for some professions simply impossible. More generally, we do not think it is necessary to specify any factors to be considered in legislation. We have already consulted stakeholders on what factors they think are important, and stated the factors we expect to be considered in the White Paper. The Opposition are worried that by not specifying the factors in legislation, future reviews simply will not consider important variables. However, what kind of support would such a review generate?
We want to encourage all interested parties to feed in their thoughts and contributions to better involve them. Specifying factors in the Bill could send out the message that we have already thought of everything important, and that future Governments do not need to consider additional factors as they are not set out in primary legislation. Such an approach could lead to a tick-box mentality, with Governments simply going through the motions instead of taking a proper, considered approach to each review. My point is illustrated by the fact that another factor has been added to the Opposition’s amendment since its predecessor was tabled only a month or so ago. Other noble Lords have also previously suggested additional factors, including life expectancy of the lowest income decile, prevalence of smoking and quality of diet. This demonstrates that the determination of relevant factors should take place after a thorough and extensive consideration and on an iterative basis for each review.
I turn now to the review’s remit. We believe that the Government should maintain control of this to keep it focused on the task at hand. There is nothing in the Bill to prevent the Secretary of State of the day updating the remit of the review, and we—or, more importantly, stakeholders—would fully expect him or her to do just this if new and compelling factors were identified during the course of the review.
The amendment of the noble Baroness, Lady Sherlock, also requires evidence to be gathered in public sessions. Although there is nothing in the Bill to prevent some evidence being taken orally—rather as Select Committees do—noble Lords will be aware that the nature of the analysis around state pension age, such as the myriad tables, charts and graphs, does not lend itself well to public sessions. Underpinning our approach is the idea that each Government will fully own and be responsible for the review. Setting out membership and factors to be considered restricts rather than increases that responsibility. It would instead limit the scope of reviews and reduce engagement by stakeholders. I therefore urge the noble Baroness to withdraw her amendment.
Baroness Sherlock
My Lords, in Committee the Minister came under sustained pressure on this matter from my noble friends Lady Hollis and Lord McKenzie, among others, and I am sure that he did not expect to emerge unscathed from Report. Many noble Lords pressed the Minister in Committee to try to understand what the consequences of this increase in means-testing would be. In particular, they were concerned about what would happen to those older pensioners who inadvertently, or perhaps negligently, fail to report changes of circumstances.
The Minister could not assuage our fears in Committee but wrote to us subsequently. That was helpful as it made clear what would happen. The letter he sent to us, dated 20 January, noted that claimants of any age who commit benefit fraud can be prosecuted. However, it also says:
“DWP may offer an Administrative Penalty as an alternative to prosecution. That penalty is 50% of the overpayment with a minimum value penalty of £350 and a maximum of £2000”.
When a claimant makes an error resulting in an overpayment, the letter explains that,
“a DWP decision maker will consider the full circumstances of the individual case … taking into account the reasons that led to the error”.
The letter then referred us to the guidance for decision-makers. I read this guidance so that noble Lords would not have to, and that is an hour of my life that I will not get back, so anyone who feels that he would like to buy me a drink at any point to say thank you is most welcome to do so. However, having done so, I then discovered the following. Incidentally, CPen means civil penalty and DM means decision-maker. The guidance states:
“Before imposing the CPen, the DM must establish that the claimant
1. has acted negligently and
2. has failed to take any reasonable steps to correct the error that led to the overpayment”.
I accept that the word “negligently” implies something serious. However, on the “Meaning of ‘negligently’”, the guidance continues:
“DMs should note that negligently should be taken to mean acting carelessly, not paying sufficient attention to the task in hand, or disregarding the importance of what is required to be done in relation to the claim or an award”.
In other words, that is a pretty low bar.
A number of noble Lords expressed concerns—as has been done very clearly by my noble friend just now—about what happens to pensioners who might struggle to keep the paperwork together or report every relevant change. The letter from the Minister said that robust safeguards are in place to ensure that matters such as mental capacity are considered. However, the guidance also makes clear that misrepresentation can involve simply leaving a section blank, perhaps because someone cannot figure out how to fill it in at that point and forgets to go back and do so later. The guidance also states at paragraphs 09206-7 that a claimant cannot avoid responsibility for misrepresentation just on the grounds that they claim they did not know what they were doing. It states:
“Non-responsibility is limited to those who are blind, illiterate or do not fully understand a particular form they have signed. Poor education, illness or inborn incapacity alone is not sufficient to show non-responsibility. People are expected to take reasonable steps to understand what they sign”.
This is exactly the sort of reason why so many pensioners dread means-testing and do not claim benefits to which they are entitled. If the Minister does not want to accept this amendment tonight, I plead with him to do one thing. Will he please take this guidance away urgently and have it revised before this legislation ever is introduced, so that pensioners are not expected to follow these kinds of rules?
Lord Freud
My Lords, assessed income periods were introduced by the noble Baroness, Lady Hollis, during the passage of the State Pension Credit Act 2002. At that time it was assumed that income and capital for those above pensionable age remained relatively stable and it therefore made good sense to relax reporting requirements, both for the individual and the department in terms of running costs. This was still the case in 2007 when the Government of the day introduced indefinite assessed income periods for those aged 80 or over.
The noble Baroness said just now that income and capital do not fluctuate by much. We have now tested those assumptions, analysed around 100,000 cases and come to the conclusion that there is actually a greater degree of volatility in people’s financial circumstances than she and the department had anticipated at the relevant times. In some cases, assessed income periods have allowed people to continue to receive pension credit following a change in their circumstances when they would not have been entitled to it had they made a new claim at that point. The evidence means that we have had to think again about the viability of the policy and have concluded that AIPs should be abolished. Ultimately, if we were to allow AIPs to continue, the taxpayer would be providing support to people who no longer need it. It would mean retaining a system in which we can only apply changes to retirement provision that would increase an award but cannot take account of windfalls that would otherwise see a reduction in or loss of benefit.
Let me be clear, we are not changing entitlement rules. We are changing the reporting system so that people’s benefit entitlement reflects their circumstances at the time. To that end, we are looking to simplify the reporting requirements so that we are able to support those who need it most and best target our benefit expenditure. I am of course mindful that by changing reporting requirements some people may find it more difficult to adjust, particularly those of the most advanced years who may have the greatest difficulty in contacting us. This is why existing indefinite assessed income periods in place prior to 2016 will continue.
For those new recipients, or those on fixed-term AIPs, we will have the opportunity to explain clearly what does and does not need to be reported at the point of claim or when their existing claim is reviewed. I stress that pension credit is already designed in such a way as to minimise reporting requirements. For example, changes to capital only need to be reported if their total amount exceeds £10,000. Currently, only 12% of people on pension credit have capital above that level. People would need to report new income streams, but we will continue to take into account annual increases in pensions automatically, based on what people tell us. We will also encourage people to tell us if their capital falls below £10,000 or if any income stops, to ensure that we capture beneficial changes.
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014
Baroness Sherlock Excerpts(10 years, 3 months ago)
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Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of this order, and I apologise for missing the first few seconds of it. Like my noble friend, I was caught out by the omission of this order from today’s lists, and I apologise to the Committee. I also thank my noble friend Lady Drake for her very detailed and extraordinarily learned analysis of the impact of this order and the ones that have preceded it. I hope very much that the Minister will be able to give it the answer it deserves, and I look forward to hearing that.
A helpful note on this subject from the House of Commons Library dated 17 December 2013 reminds us that the original idea proposed by the Pensions Commission chaired by the noble Lord, Lord Turner, of which my noble friend Lady Drake was such a distinguished member, was that the qualifying earnings band should start at the primary threshold for national insurance purposes and should finish at the NI upper earnings limit. The previous Government said in their 2006 pensions White Paper that they would adopt broadly this approach, so the lower and upper limits of the qualifying earnings band were set at £5,035 and £33,540 respectively, and provision was made for both limits to be increased in line with earnings.
The real jump came with the Government’s Pensions Act 2011, which introduced an earnings trigger for auto-enrolment set at a level higher than the lower limit of the qualifying earnings band, on which contributions are paid. As we have heard, for 2011-12 the trigger was set at £7,475 rather than the planned threshold of £5,035 in 2006-07 terms, and the effect of that was to exclude 600,000 individuals, 75% of them women. My noble friend went through some of these figures but I think it is worth rehearsing them because the Minister will have to give us an answer about the effect of these changes.
Since then, the exclusions have mounted up. In 2012-13, the trigger rose to £8,105, excluding 100,000 people, 82% of them women. In 2013-14, it rose to £9,440, excluding some 420,000 people, of whom 300,000—72%—were women. Now, as we have heard, by going up again from £9,440 to £10,000, the Government will exclude another 170,000 people, of whom 120,000—69%—are women. I would be very interested to know if the Government agree with the figure offered by my noble friend Lady Drake about the cumulative number of people who have been excluded from auto-enrolment by these changes.
The DWP paper titled Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2014/15: Supporting Analysis—I commend the officials on its title—issued in December 2013, offers the defence that the reason that so many women are affected is that women are more likely to work part-time and to earn less than men, so they will be disproportionately represented in the group excluded from auto-enrolment. Well, yes, of course. That is not a defence, it is a reason, but that still leaves the problem. Now another 170,000 are to be excluded from the benefits of auto-enrolment into pension saving.
Of course, not only are women more likely to work part-time but there are those who work in more than one mini-job, neither of which takes them above the trigger point for being brought into this. Those women could, in fact, be earning significant sums of money on which contributions would be payable but because neither job takes them above the trigger they will not be auto-enrolled in either job. I would be interested if the Minister could comment on that.
As so much has been said already, I will ask just a small number of questions of the Minister. The DWP document I mentioned noted—and the Minister reinforced a version of this in his speech—that the Government used three principles in reviewing the automatic enrolment thresholds. The first of these is whether the right people are being brought into pension saving. Can the Minister tell the Committee how the Government reached the conclusion that excluding another 170,000 low-paid workers from the benefits of auto-enrolment met the condition that the right people are being brought into pension saving?
Secondly, with a trigger of £9,440, the target population for auto-enrolment is around 10 million individuals, of which only 37% are women; going up to £10,000, that falls slightly to 36%. When the Minister considers that figure, which came from the DWP’s excitingly named document, and the high proportion of those excluded who are women, is he satisfied that the Government’s approach to auto-enrolment is serving women workers well?
Finally, the paper argues that workers paid below the earnings trigger are likely to be able to achieve their target replacement rates through the single-tier pension if they remain low earners, and it may therefore not be beneficial to direct income from working life into workplace pension savings. If an individual earning £9,999 a year has an option to contribute to a DC scheme, should she take it?
Lord Bates
My Lords, first, both the noble Baronesses referred to the speed with which we have gone through the Order Paper. In fact, that caught all sides on the hop, and apologies are due all round. The responsibility, of course, lies in the preceding orders going too speedily. However, I am grateful to both noble Baronesses, who, in the exchanges we have had over many sittings on the Pensions Bill, have demonstrated their incredible grasp and knowledge of these complex areas, and have spoken passionately about the impact upon women in particular. I will come to these points, and respond to them as best I can.
One of the key things I said in the concluding remarks of my speech was that we recognise that setting these thresholds is a balancing act and that there is no right or wrong answer. It is therefore right that there should be a debate and that it has become an annual debate. It is an affirmative instrument and therefore any changes that are made annually have to come before your Lordships’ House for consideration. That is the right way to do it.
The other point of context we need to acknowledge, which the noble Baroness, Lady Drake, was good enough to make, is that the figures for auto-enrolment, which I accept came out of the Turner commission, which in turn came out of the Pensions Act 2008 under the previous Government, have been impressive. Significant progress has been made in encouraging the right people to save for their retirement. In pursuing that, we are absolutely on common ground.
It might be helpful if I went through some of the figures that we have for the number of people affected. Raising the 2014-15 value of the automatic enrolment trigger from £9,440 to £10,000 will exclude around 170,000 individuals, of whom around 120,000—69%—are women. Raising the 2013-14 value of the automatic enrolment trigger from £8,105 to £9,440 excluded around 420,000 individuals, of whom 300,000—72%—are women. I am going back through these numbers because it is a rough way of getting back to the calculation made by the noble Baroness, Lady Drake, which the noble Baroness, Lady Sherlock, asked me whether I agreed with. Raising the 2013 value of the automatic enrolment trigger from £7,475 to £8,105 excluded around 100,000 people, 82% of whom were women. Finally, raising the 2011-12 value of the automatic enrolment trigger from £5,035—in 2006-07 terms—to £7,475 excluded 600,000 individuals, 78% of whom were women. If one calculates those figures, one begins to recognise the numbers that the noble Baroness, Lady Drake, presented to us.
However, it is not so simple as to say that 70,000 women would be in automatic enrolment if their part-time earnings were brought together. I realise that there is a big education job to be done here, because many women who are underneath the threshold need to realise that if they are above £5,772 in terms of the lower earnings limit, they can opt in and therefore get the benefits that would accrue from that.
Baroness Drake
I do not want to be too difficult. However, the Secretary of State has stated clearly that this is driven by his view that people should not be auto-enrolled into pensions until they start paying tax. That is not doing a balancing act; that has been the Government’s consistent position since 2010. The Hansard record shows that I keep asking the question, “Are you going to keep tracking the tax threshold, because if you keep doing that you will exclude more and more women?”. That is not a balancing act. If you did a balancing act, you would say, “What is the balance between that approach and the number of women excluded?”.
The Government have locked themselves in, both by the Secretary of State’s statement and by their behaviour since 2010, when they said that people who do not pay tax should not have the advantage of auto-enrolment. The benefit of releasing them from a certain level of tax is reduced by the fact that they lose the employer’s contribution, and we are now getting to a point where the gain from the increase in the tax threshold is less than the loss of the 3% of the employer’s contribution. So over their lifetime, the low-paid person is actually worse off.
Baroness Sherlock
My Lords, before the Minister answers that, I asked him whether he felt that the way in which the Government have designed the service served women well. His defence appeared to be that there has to be a line somewhere. The point I was trying to put to him is that the Government have designed this scheme in such a way that only a third of its target population are women; in other words, they have designed a scheme that will benefit two men for every woman. Does he feel that the way the Government have chosen to design the scheme benefits women?
Lord Bates
No more or less than raising the personal tax allowance thresholds is a policy that is designed to disproportionately benefit women compared to men. When the tax threshold goes up from £7,475 to £10,000, that is a massive benefit to women, particularly in lower income positions. That is money coming into their households, so they can decide what to do with it. Anyone with earnings over £5,772 will retain the right to opt in, as I have already said, with employer contributions.
The Pensions Act requires the Secretary of State to review the thresholds each tax year. That is a discussion which takes place. There is a strong argument that says there is synergy there between personal tax allowances at the £10,000 level, helping employers and employees to understand where that mark falls, but in no way does that guarantee what the policy will be going forward. It will be for the policy to be announced and the review to take place and the instruments to come forward next year.
I am trying to work my way through the many questions that the noble Baronesses have put to me. I am not sure whether I have answered all the points.
Baroness Sherlock
I will let the Minister off the first two, if only on the grounds that I am unlikely to elicit an answer that I will find helpful. But my last question was very specific: if an individual earning just less than £10,000 a year had an opportunity to contribute to a DC scheme, does the Minister think that she should take it?
Lord Bates
The view is that this will be a personal choice for the individual faced with that challenge. It is a specific point. I know that the noble Baroness feels very strongly about this.
Baroness Sherlock
I am not asking this question because I feel strongly about it; I am trying to test the Government’s argument that the reason low earners should not be auto-enrolled is that it is not worth saving small sums of money. Do the Government assume that same stricture should apply to private pensions as well as to auto-enrolment?
Lord Bates
Each individual’s situation will be different. In some cases, they will have partners who will be earning more and therefore they will take a household decision to take advantage of the same scheme. For some people, that will not be the case and therefore they will not. We are saying that we want there to be a scheme. We want it to be as simple and straightforward as possible so that as many employers and employees as possible can get full benefit from it, and so that people can get into the habit of saving. It will be up for annual review. There needs to be much more education to ensure that all people who earn below that threshold realise that they can opt in should they wish to and should their personal circumstances make that the right choice for them.
I have tried to address as many as possible of the questions that have been put forward by the noble Baronesses, for which I thank them.
Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014
Baroness Sherlock Excerpts(10 years, 3 months ago)
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Baroness Sherlock (Lab)
My Lords, I thank the Minister for that explanation. I woke yesterday morning to hear on the radio an announcement about a wonderful new scheme the Government are planning to introduce called the health and work service, which would cover England, Wales and Scotland. I wonder what happens in Northern Ireland. I am not sure I caught that. This scheme would offer voluntary medical assessments and treatment plans for employees. There was nothing in that bulletin to inform the listener that this would be paid for by scrapping the percentage threshold scheme, or PTS, which enables employers to reclaim some of the costs of statutory sick pay, or SSP, from the state. I will be charitable and assume that this is because Parliament has not yet approved this order. I know that Ministers are loath to let anything slip out to the media before Parliament has had the opportunity to scrutinise it in great detail—although I confess that, somehow, the BBC had got hold of that side of the story on its website a little later.
These regulations abolish the percentage threshold scheme, and we are assured that stakeholders welcomed the change, apart from one employer representative group which was concerned about the impact on small employers of removing the remaining element of SSP reimbursement. We were told that the average amount claimed under the scheme in 2009-10 was £500 per year, per claimant—that is, per employer claiming. That may not sound a lot, but the impact assessment also tells us that micro-employers, those with fewer than 10 workers, receive 70% of the recovery, and £500 can be a lot of money to a micro-employer.
I know of a church in Durham, where I live, the sole employee of which is a rather wonderful youth worker; the vicar, of course, is paid by the diocese. Sadly, the youth worker has been off sick for some months. It was a big decision for the church to hire her, but it decided to dip into its reserves to hire a youth worker to work not just with the children in the church but children in the local community. Unfortunately, she has developed a condition which means that she has been off sick for some months. She is brilliant and the church does not want to lose her, but money is tight. Thanks to the PTS, it has been able to get some of the SSP back, so it can afford to pay a locum to do at least some of the work. At the moment, a locum youth worker is running a wonderful club for a few weeks for year 6 children in the neighbourhood to help them prepare for moving up to secondary school. However, my point is that £500 to that church is a lot of money. Can the Minister tell the Committee whether the Government have talked to micro-employers about the likely impact of this change on their operations? According to the Black review of sickness absence, micro-employers represent 82% of employers; obviously, they represent a smaller percentage of employees, but that is a lot of employers.
The argument made in the Black review is that PTS compensates mainly small employers for “higher-than-average sickness absence” but fails to promote attendance management; I think that was the point the Minister was making. That seems to me to fail to distinguish between two things that were rammed home to me in business school in assessing sickness absence in an organisation: the number of periods of sickness and the number of days of sickness. If you have a lot of periods of sickness, a lot of employees off for a small number of days, that can tell you something about whether people are taking sick leave a lot and it can tell you something about morale. The total number of days can be completely skewed in a small organisation by one person having a very serious illness. I did not see that distinction made. A good example would be this church, which would look as though it had a terrible sickness record but that is because one youth worker happened to develop a condition.
I am trying to draw this out, because I wonder if the Minister could help me to understand. The assumption is that those who get most of the money are small organisations with higher than average sickness absences, which therefore fail to promote attendance management. I wonder whether the evidence backs that up. Can the Minister help me to understand that rationale? The impact assessment says that the abolition of the PTS removes a transfer of some £50 million from the Exchequer to businesses and that the new health and work advisory service will generate a net value of around £70 million for employers—£120 million in benefits minus £50 million in intervention costs, I gather. There will also be a presumed benefit to the state.
The Minister can correct me if I am wrong, but my understanding is that that means that all the current spend on the PTS of £50 million is being recycled into the new scheme. Can the Minister confirm that? The assumption is therefore that businesses are not losing out. However, if that is true, what calculations have been made as to how evenly the gains and losses will be distributed? After all, if 70% of the benefit of the PTS goes to micro-employers, is it assumed that 70% of the benefits of the new service will be enjoyed by micro-employers? The impact assessment says that smaller employers are expected to benefit disproportionately, as they are less likely to have their own rehabilitation and occupational health services, but it did not quantify that. Can the Minister tell the Committee if any assessment was made? If so, what is the distinction? Within smaller employers is a large group: micro-employers are those who have fewer than 10 workers. Was any distinction made between those two categories?
A crucial question is whether the fact that in future employers will bear the full cost of SSP is likely to have any effect on their willingness to hire or retain staff whom they may judge likely to need it. In other words, will they discriminate against staff who have a potential health issue or have had a health record in the past that gives them cause for concern? The impact analysis does not address that directly, but under the heading “Key Assumptions/Sensitivities/Risks” it includes the following assumption:
“The removal of the PTS doesn’t precipitate (illegal) discrimination by employers against employees with poor sickness absence records”.
Can the Minister tell the Committee what evidence underpins that assumption? I am not saying that that will happen but I would be glad to know why the noble Lord, Lord Freud, felt sufficiently confident that it would not to sign off the impact assessment without that assumption spelt out in it.
My other question about these regulations relates to whether there is any risk that employees will be less likely to receive SSP under the new system. In consequence of the abolition of the PTS, the Government have also produced a set of regulations which have not yet taken effect, which propose to abolish the requirement on employers to maintain records for each employee relating to sickness absence and the payment of SSP for three years after the end of the tax year where SSP was paid. I refer to the Statutory Sick Pay (Maintenance of Records) (Revocation) Regulations 2014.
Can the Minister tell us what risk assessment the Government have undertaken as to the likelihood of employers not paying SSP correctly or at all once the record-keeping requirement is abolished alongside the order we are discussing today? The Explanatory Note which covers both orders tells us that HMRC will retain the power to require an employer to produce records to show them that SSP has been paid appropriately. What discussions has the department had with HMRC to satisfy itself that there will not be an unintended consequence of some employees not getting the money to which they are entitled? The Explanatory Note also says:
“Stakeholder engagement found that employers maintain records of sickness absence for payroll, tax and other staff management reasons”.
Can the Minister confirm that those stakeholders include individuals from or representing micro-enterprises?
Finally, the 2011 Black review on sickness absence recommended that the Government should carry out further research into the reasons behind the significant number of people claiming ill health benefits who come straight from work, especially from smaller employers. That is the earlier Black review. It recommended that the Government carry out further research into the reason why significant numbers of people claiming ill health benefits who come straight from work appear not to have been paid sick pay by their employer beforehand. Has that been done?
My very final question is that the impact assessment notes that HMRC periodically visits businesses to see if their payroll is running smoothly and it reviews payroll documentation including SSP and sickness absence records. Can the Minister clarify whether on those visits HMRC will still routinely review SSP records? I look forward to the Minister’s reply.
Lord Bates
I thank the noble Baroness for her questions and for the case study she gave us from the diocese of Durham, which of course I have a strong affinity with and want to see everything possible done to help. In considering that, the best thing that could happen to any small employer in that situation is that the employee returns to the workplace. The question is whether, through this reallocation of the resource from the threshold scheme to the health and work service, it is more likely that the person concerned will find a pathway back to the employer and the workplace, which is the best solution all round. Our view is that it will and that it is a better use of the resource.
The noble Baroness asked how the £50 million that is currently paid under the threshold scheme will be allocated. It will be used to fund the health and work scheme and the tax exemption for interventions which was announced in the Autumn Statement. Where interventions are recommended to get somebody back to work which incur a cost—for example, the provision of physiotherapy or a particular piece of equipment or a change in working practices—the employer will be able to offset that cost. Many large national or multinational companies have sophisticated HR departments which seek to address all these issues to get employees back into the workplace as soon as possible. However, micro-employers do not have that facility. They will be able to take advantage of the new scheme and make some savings as a result of it. That is one of the reasons why it is widely welcomed by them. Micro-employers will benefit more than larger employers for the reasons I have outlined.
Less than 10% of micro-employers make claims under the percentage threshold scheme, which raises another point that the scheme is so complicated and complex that many micro-employers who could benefit from it do not take advantage of it at present because they do not appreciate that it is there. We hope that with the publicity surrounding the new way of working through GPs and employers and employees, more will take advantage of the service, and that will be to the benefit of all. Micro-employers currently receive around 70% of the money paid out under the scheme. The average claim under the scheme is less than £500 a year, but this masks considerable variation. For example, around 25% of micro-employers claimed less than £200 in 2008-09.
The noble Baroness asked about a particular church employee. The health and work service will support the employee and the employer in the diocese to try to find a plan to enable the person concerned to return to work under the new scheme. She also asked why the scheme will not apply to Northern Ireland. However, this is a fully devolved matter for Northern Ireland and therefore it will make its own decisions on how the scheme will operate. The health and work scheme will apply just to England and Wales.
The noble Baroness asked about the abolition of associated SSP record-keeping. Employers will still need to maintain SSP records for pay-as-you-earn and tax purposes. There is no evidence to suggest that employers will not meet their SSP obligations as a result of record-keeping abolition. The HMRC statutory payments disputes process will continue to ensure that employers meet their obligations. There will be ongoing monitoring of disputes and the actions which are taken.
I think that that covers many of the points which were made. However, the noble Baroness may be about to tell me—
Baroness Sherlock
I would hate to disappoint the Minister and I thank him for going through so many of my questions.
I have a couple of specific points. His answer to my concerns about the record-keeping point was that the Government assume that since employers keep records anyway, there is no reason to assume they will cease to keep them. They say that in its routine visits HMRC currently inspects payroll records, including SSP records. Is it the intention of the Government that it will continue to inspect SSP records on these visits, even though companies are not specifically required to keep them in the form that is described here? The suspense is killing me—I look forward to hearing that answer.
Can the Minister explain again the position of micro-employers? My understanding was that 70% of the benefit was going to micro-employers, but I think he said it would be only 10% of the claims. Perhaps he could help me to understand that. The point I was trying to draw him out on, about the fact that the new service will more than compensate for the loss of the PTS, was that I can see that across populations that is true but if, as a micro-employer, you have only one or two employees and they cannot be got back to work because of the nature of their conditions, they will lose out. Was any thought given to whether they might be protected from that in some way?
Lord Bates
The noble Baroness asked about the HMRC visits. I am delighted to give her the answer, which is yes. She also asked for clarification on the 10% figure. I said that less than 10% of micro-employers make claims under the percentage threshold scheme, which I think was the point she was asking for clarification on.
I hope that noble Lords will agree that the abolition of the percentage threshold scheme is important so that savings can be reinvested in the new health and work service, which will benefit both employers and employees in reducing lost working days and increasing economic output. I commend the order to the Committee.
Employment: Young People
Baroness Sherlock Excerpts(10 years, 3 months ago)
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Lord Freud
My Lords, I could not agree more with my noble friend. There are only four things one can do to help youngsters into the workforce: directly get them a job; training and education; apprenticeships; or work experience, which is a stepping stone. That is what Alison Wolf told us, and that is what the Government are aiming to do.
Baroness Sherlock (Lab)
My Lords, I think the Minister said that the Government inherited high long-term youth unemployment from the Opposition. However, the ONS publication Labour Market Statistics shows that long-term unemployment for 18-24 year-olds is 232,000. The same data set shows that in the period spanning the last election it was only 188,000. Labour has made it very clear that we would guarantee a job for every young person out of work for more than a year and make them take it. What will the Government do?
Lord Freud
My Lords, the figures the noble Baroness quoted are very distorted by the training allowances, which got people off the long-term measure. I will not go into a long song and dance about it, but those figures were the result of a very distorted comparison. I have quoted the real figures—the ones that matter—to this House on a regular basis. When you look at youngsters who are both workless and outside full-time education, that figure rose through the longest boom we have seen in our history because of structural inability to get those youngsters into the workforce. There was neither adequate education nor routes into the workforce. We are turning those figures round—and they are the real figures.
Child Support Fees Regulations 2014
Baroness Sherlock Excerpts(10 years, 3 months ago)
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Baroness Sherlock (Lab)
My Lords, in speaking to these regulations I declare an historic interest as a former non-executive director of the Child Maintenance and Enforcement Commission until 2010, and a very historic interest as a former chief executive of the National Council for One Parent Families, which is now lost in the mists and merged with Gingerbread.
I thank the Minister for his explanation of these regulations, and I am grateful to other noble Lords who have spoken on this for the illumination they have added. Most of the time, when I face the Minister across the Dispatch Box, I would happily change places, but when he faces down the noble and learned Lord, Lord Mackay of Clashfern, he is welcome to that seat, at least for the duration of these proceedings. I wish him well in answering the points raised by the noble and learned Lord.
I thank all those organisations which sent in briefing, including Gingerbread and the Resolution Foundation and, indirectly, Families Need Fathers. We on this Committee are also indebted to the noble Lord, Lord Goodlad, and his Secondary Legislation Scrutiny Committee, which did an extraordinarily thorough job on these regulations. It identified gaps and question marks and pursued Ministers gently but persistently, drawing information from them bit by bit until it got answers. I put on record my appreciation of its intelligence, analysis and perseverance.
These are significant regulations, and despite the lengthy impact assessment, we all know that we do not really know what will happen as a result of both the new scheme and the charges being imposed on both parents. The Government’s aims for these reforms, which were set out clearly in the Green Paper, Strengthening Families, Promoting Parental Responsibility, were twofold: to achieve cost savings for the taxpayer and to create an incentive for parents to work collaboratively to make family-based arrangements rather than enter a statutory scheme.
The Secondary Legislation Scrutiny Committee’s excellent 23rd report of the current Session draws these instruments to the special attention of the House on the grounds that they may imperfectly achieve their policy objectives, so it is important for the Minister to reassure the Committee on this point. Specifically, the Select Committee says:
“we conclude that although the transfer scheme may make savings it may imperfectly achieve the overarching objective of providing financial support to children”.
The committee engaged in a correspondence with the relevant Minister in another place, which eventually drew more information out but in my view was not ultimately satisfactory in providing assurance on that point.
I shall ask the Minister to reassure the Committee on those broad points and then ask some specific questions. First, a number of noble Lords have raised behavioural issues. The impact assessment assumes that fewer cases will enter the statutory scheme as a result of the change, but also suggests that the proportion of arrangements affected will rise from the current 60% to 70%. The assumptions seem to be rather optimistic. The present pattern of compliance in family cases is one thing, but that is not necessarily a guide to what we may expect to see in future. As my honourable friend Kate Green put it in another place, at the moment we have parents who may be choosing positively to co-operate, but in future parents with family arrangements will be those who simply see it as the lesser of two evils. There will therefore be a different set of arrangements going on in family arrangements from those that prevail at the moment, so how confident is the Minister of those figures?
On the cost objective, the Government are clear that they expect to score substantial financial gains from the new scheme being introduced, especially as the result of charging fees. Fees both bring in income and reduce running costs, as parents are deterred from using the system. However, I looked in vain for a parallel level of ambition to increase the amount of child support that would actually reach children, a point made by the noble Lord, Lord Kirkwood. What are the Government’s ambitions in that connection? After all, the point of a child support scheme is not to be efficient. It should be efficient, but its point is in fact to get money from the non-resident parent to the parent with care. Presumably the Government have some ambitions for increasing the amount of maintenance that is going to be transferred to children as a result of the reforms. Could they help us on that point?
I also have some questions about the implementation of the new scheme, some of them touched on by the noble Lord, Lord Kirkwood, and some by the noble Baroness, Lady Howe. This is crucial as the Government always said that they would not introduce fees until phase one of the new system was working well. The Minister told us that the scheme started in November and that they aimed to move people on from next summer. Can he tell us a bit more, as the noble Lord, Lord Kirkwood, also asked, about how the new scheme has been performing so far? I will certainly be interested to hear the answer to the noble Lord’s question about how many cases have been paid in full.
How is the interface with HMRC working? I am particularly interested in self-employed non-resident parents. There is the issue of who is responsible for enforcement. I am assuming that that will lie with the CMS but it would be helpful if the Minister clarified that. A common complaint is when a self-employed NRP declares very low levels of profit on, for the sake of argument, his business but the parent with care believes, or has evidence based on his apparent lifestyle, that in fact a much higher level of income is coming in than might be suggested by the latest set of accounts made available to the taxman. At the moment, if she has that evidence she can go to the CSA and it can investigate that. If that should happen in future, does the CMS have the powers to investigate that or will it be left to HMRC? If the CMS has the powers, will it exercise them? If it is HMRC, what assurances has the Minister had that it will do this and prioritise it over the other workloads placed on its shoulders?
When does the Minister expect to be in a position to publish a full range of statistics on cases being dealt with by the CMS? Will these stats show how many cases transfer from direct pay to collect and pay? See—I have got the jargon. It would be helpful to know what was happening to cases going into the scheme.
By what precise criteria will the Government decide when to commence the full new regime? A Written Answer to my honourable friend Kate Green in another place on 23 January said that the Government will determine when the new scheme is operationally ready for the transfer of cases in accordance with the criteria of,
“the Department for Work and Pensions Project Change Lifecycle Framework”.—[Official Report, Commons, 23/01/14; col. 263W.]
I apologise that I am not immediately able to translate that for the Committee, but perhaps the Minister can do it for me. What does that mean and how will it be applied?
Baroness Sherlock
I thank the Minister for going through all those questions—I am very grateful. I still have a couple which perhaps he missed out.
The Minister has explained to us that the Government believe that there will be more children in receipt of maintenance and more effective arrangements. However, he did not pick up on the amount of money that will change hands. For example, it would be perfectly possible for someone who was currently getting the full statutory amount through the statutory system to have in future a family-based arrangement in which they agree to take half of that amount to keep each other happy. Will the Government also be monitoring, and set a target for, the amount of child maintenance that is changing hands, and will they monitor in particular whether the amounts for individual families go down? In other words, one could see a change in the mean—by, for example, people who are currently nil-assessed joining the system—but that might disguise a fall in other cases. How well would that be monitored?
I think that I asked a question about the media campaign that Steve Webb had promised in early 2014. Does the Minister have any information on that?
There is a piece of nuance for which I apologise from this side as a pedant. On the question of domestic violence, the Minister said that he is confident that a non-geographic option will be available. Could he reassure the Committee that where domestic violence is alleged or admitted, a parent with care will not be required to accept direct pay unless and until such a scheme is available to them?
Lastly, I want to be sure that I understood his question about enforcement and HMRC. I think that he is saying that it will become more difficult for a parent with care to raise the question of where they believe earnings have been underdeclared. HMRC may deal with the general question of whether enough tax has been paid but at the moment, as I understand it, and I would be grateful if he would tell me whether or not I am right, a parent with care can go to the CSA with evidence showing that the non-resident parent has higher income than has been declared to the CSA—for example, if the lifestyle in terms of a house, a car or money spent would not appear to tally with the relatively small amount of income declared—and it can investigate and address that. Is he saying that that will not happen unless HMRC decides in general terms to conduct a tax investigation?
Lord Freud
On the question of the amount of maintenance, our estimate at this stage is that more children will get maintenance. That is what I have said. How much that maintenance is in money terms is less clear at this stage. It is one of the things that we will find out. I need to remind noble Lords that assistance may take many forms to children—more shared care—so the question is not just about money. It is about the level of support. That is an area that we will be looking at closely.
On bank accounts, the parent with care will be able to dictate to which account the non-resident parent must pay. If that fails to happen, it will result in a return to the collection service, which I think in practice deals with the noble Baroness’s question.
At the moment, the CSA gets a complaint from the parent with care. The place where it goes to check is HMRC. That main checking area becomes irrelevant when there is a direct feed. Where she is suspicious—it is a suspicion—of, effectively, tax fraud, that is what we are talking about.
Baroness Sherlock
So the CSA does no investigating of its own? I am sorry; I must have misunderstood that point.
Lord Freud
No. Currently the CSA checks with HMRC. As now, it will be able to provide information to support its suspicions that all might not be well. This is a difficult issue more generally.
On the question about the campaign, we are planning a media campaign using social media and paid-for channels such as radio. We are still finalising those details. The intention is to raise awareness of case closure and to promote parental responsibility. We will get more details of that out in coming months.
With all the issues dealt with—perhaps not to everyone’s absolute satisfaction—I will commit to continuing to provide transparency in the delivery of this programme of reforms. We published a strategy for the publication of information about the 2012 scheme on 18 July last year. We plan to release official statistics once we are assured of the appropriate quality of the data; we expect this to be after April 2014, as I said. Ahead of this, we have used the management information that is available to release limited relevant data on a one-off experimental basis, published on 25 November last year. As I mentioned earlier, we will review the effects of the fees and regulations, and lay a report before Parliament following 30 months of operation. I commend the regulations to the Grand Committee.
Housing: Underoccupancy Charge
Baroness Sherlock Excerpts(10 years, 3 months ago)
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Lord Freud
My Lords, less than half the overcrowding takes place in London. More than 30% of properties are actually one-bedroom and 108,000 have come up. We are adapting to the transition by using the discretionary housing payment system. The recent data on discretionary housing payments show that that is exactly how local authorities are using that money.
Baroness Sherlock (Lab)
My Lords, the Minister mentioned discretionary housing payments. The LGA survey says that 81% of authorities said that the number of applications for DHPs had increased greatly between April and November 2013 and that the social sector size criteria topped the list of reasons for this. The LGA has made the point that there are some areas where there is simply not enough accommodation, and therefore the amounts of money the Government have made available are not enough. The tenants are suffering and the local authorities are picking up the tab. Will the Government commit to reviewing this policy and giving local authorities and tenants the help they need?
Lord Freud
My Lords, we have a high level of discretionary housing payments, running at £180 million. More importantly, £20 million of that is to be bid for. I have currently had 67 bids and we are paying out. I am not sure whether local authorities will actually be using up all the discretionary housing payment at their disposal. As noble Lords know, a review is going on. I will be able to publicise the interim findings in the spring and the final version will appear next year.