Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 3) Regulations 2012
Lord Freud Excerpts(11 years, 7 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 3) Regulations 2012.
Relevant document: 6th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I am pleased to introduce this instrument which was laid before the House on 2 July. I am satisfied that it is compatible with the European Convention on Human Rights.
Two weeks ago we celebrated a major milestone: the start of the rollout of the workplace pension reforms. These reforms are critical to allow people to start planning for their retirement. Your Lordships will no doubt have seen the, “I’m in!” campaign in the media to raise awareness about the reforms. By the time all employers are included, millions more people will be able to join the bosses by saying, “I’m in”, with more than 500,000 new savers in workplace pensions by Christmas. For many it will be the first time they have had the opportunity to save in a pension.
The instrument that we are to debate today is very technical and might seem to be a relatively insignificant part of the landscape. But for some of the largest employers in the country, who are at the front of the queue, these amendments will play a vital role so that they can use their existing high quality, career average pension schemes to meet their duties. Without this amendment, an oversight in the original regulation would prevent them doing so.
The issue emerged earlier this year during the department’s engagement with employers as they prepared for the onset of the new duties. The problem lies in the way that the quality requirements for career average schemes interact with the scheme rules for some career average schemes. A key part of the quality requirement for career average schemes is that accrued benefits must be revalued. The policy intent is to ensure that individuals are given a measure of protection against the effect of inflation. It is important that benefits accruing in a career average scheme are revalued in service as well as in deferral.
The minimum level of revaluation required by Regulation 36 of the 2010 automatic enrolment regulations is a guaranteed annual increase by reference to the increase in the general level of prices. If the benefits are to be revalued only on the exercise of a discretionary power, the scheme may still qualify if the funding of the scheme assumes the minimum increase is to be made, and the funding is provided for in the scheme’s funding plan. This easement was made available only to schemes that revalue purely on a discretionary basis. Those that feature an element of guaranteed revaluation below the minimum, but which also have a discretionary power to revalue at the minimum rate, would not qualify.
This is the problem which puts the regulation at odds with the original policy intention of allowing schemes to qualify if they revalue on a discretionary basis provided the increase is properly funded. We consulted earlier this year on proposals to allow schemes which provide for a mix of guaranteed and discretionary increases to qualify. We also asked whether there were other aspects of this regulation that might inadvertently prevent perfectly good quality schemes qualifying. The objective is to give an appropriate degree of protection to members’ benefits against the effects of inflation and to ensure that the quality requirements are applied consistently across scheme types. At the same time, we want to allow flexibility on how these requirements are actually met. This will ensure that we do not impose any unnecessary and costly burdens.
We received a number of suggestions in this area, some of which we are considering further. One was very simple to agree to. Regulation 36 currently allows a scheme that revalues by reference to the increase in RPI to qualify only if it was in existence on 1 July 2012. We agreed with respondents who saw no reason to prevent a scheme that is set up after that date also qualifying if it chose to revalue by reference to RPI without the need for a CPI underpin in years when the CPI is higher than the RPI. So the draft before the Committee today also allows for revaluation by CPI or RPI, subject to the cap on required revaluation at 2.5%.
As I said earlier, this amendment is not the most attention-grabbing piece of legislation that we will make this year, but for some major employers getting ready for the workplace pension reform it may be one of the most important. I commend this instrument to the Committee.
Lord Kirkwood of Kirkhope
My Lords, I want to add my support for these regulations. I have myself had one of the four or five questions from the noble Baroness, Lady Drake. It concerns the consultation that the Office for National Statistics is engaged in at the moment in terms of RPI versus CPI. That needs to be thought about quite carefully because it could have a dramatic impact on some of the scheme rules we are talking about and which these regulations cover. I want to put in a request that the department ensures that the ONS is careful about this issue and that people are made aware of the consultation it is currently engaged in.
There is one point I do not understand. I imagine that an average salary scheme must be a defined benefit scheme and therefore it will have a statement of funding principles and trustees. Given that, I do not understand why the easier fix for this was not to change the scheme rules in order to make them compliant. I cannot believe that trustees would want to do anything other than that. They may have a contest for the sponsor of the scheme in terms of getting the resources, but I cannot see how that would be a problem. My question is this: although I am in favour of them, why are these regulations necessary? Why can the trustees of the scheme not deal with it by making a small amendment to the funding rules in the statement of principles for their own individual salary schemes?
If it is easier to give answers to these rather more simple questions by letter, I am quite happy to receive one as well.
Lord Freud
My Lords, I think I will end up writing a letter, but I ought to try to answer the questions in general terms, thus saving a little effort in terms of letter writing. The first point made by the noble Lord, Lord McKenzie, concerned the potential changes to CPI and RPI. About a year ago we had the most glorious debate on this matter, for which I enjoyed researching probably more than any other topic. I think I am pretty comfortable in saying that the authorities are looking at these two measures and that there are likely to be some changes. RPI has had a very bad press lately, as some noble Lords who are aficionados will have noticed. If and when that change happens, we will have to take a decision, but it is pretty premature to take two hypotheticals and jump to a conclusion ahead of time. We will engage closely with the ONS to ensure that the potential impact on pension re-evaluation is fully considered.
On relying on trustees, my noble friend is absolutely right that there will be trustees here. This is just a technical change. The way it was drafted would have excluded these particular schemes, so that is the way that that has been addressed. This is moving into where schemes go into deficit and the question from the noble Lord, Lord McKenzie. They will be required to find funds for the minimum revaluation rate. Section 75 debt will continue to be calculated on the basis that the minimum revaluation rate will apply. The sums go on, even though the scheme has a problem which needs to catch up.
On the schemes that revalue benefits by reference to earnings, we are committed to considering further how that kind of revaluation could be allowed for. Historically, earnings have gone up faster than inflation so it is a lower risk, although that has not necessarily happened in recent years. On the question of whether the provision for discretionary revaluation would be required to be at least that necessary to meet the minimum rate—CPI, RPI or whatever is lower—the answer is yes. Regulation 36(3)(a) stipulates that a scheme with benefits to be revalued on the exercise of the discretionary power can be a qualifying scheme if,
“the funding of the scheme takes account of the exercise of the discretionary power and does so on the assumption that accrued benefits would be revalued at or above the minimum rate”.
That figure is CPI or RPI, whichever is the lower.
I may have answered all the questions without the need for a letter. That would be one of the miracles of our time. I will make sure and, to the extent that we have not absolutely locked this down, I will send a letter over because it is a very technical area.
Baroness Turner of Camden
I have a question. There has been a report in the newspapers recently that a number of small employers have no idea how to operate the new scheme. Of course, the problem is that if it is not operated, a lot of people will not get the choice of whether to go in, opt out or whatever. I am interested to know whether the Government are taking on board the problems with smaller employers who really do not understand what is actually involved in getting people into the automatic scheme.
Lord Freud
Yes, I can pick that up. Clearly, there is a staging going on. Smaller employers are towards the end of that, and are two or three years out from now. It would clearly be hugely counterproductive to send them an early letter which tells them that in two years’ time this or that will happen because they will tend not to look at it. It is really important in a communication exercise that we time it right. It is somewhat encouraging that quite a few knew that this was coming. A communication exercise is integral to us launching this properly. That is a key point.
To sum up, the point of this measure is to make sure that good-quality career-average pension schemes can be used for automatic enrolment. It allows flexibility without compromising individual protection and closes a particular gap in the legislation that we would not have wanted to see. On that basis, I commend the instrument to the Committee.
Motion agreed.
Child Support Maintenance Calculation Regulations 2012
Lord Freud Excerpts(11 years, 7 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Child Support Maintenance Calculation Regulations 2012.
Relevant document: 6th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I will also speak to the draft Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012. These two sets of regulations were laid before both Houses on 2 July 2012 under the powers contained in the Child Support Act 1991, as amended by the Child Maintenance and Other Payments Act 2008. It is a requirement that I confirm to the Grand Committee that these provisions contained in the two sets of regulations are compatible with the European Convention on Human Rights, and I am happy to do so.
Getting the child maintenance system right is one of the most important matters that we face as parliamentarians, as parents and as a society. This House has always played a crucial role in national debates on the issue, and the considered views of Members of this House have consistently both informed government thinking and improved the legislation that underpins this area.
The two sets of regulations before us today are a key part of the Government’s child maintenance reform programme, outlined in our Command Paper entitled Supporting Separated Families; Securing Children’s Futures, which we published in July 2012. I know that noble Lords are well aware that the performance of the child maintenance system has fallen a long way short of the expectations of this House and, more importantly, of the people that the system is designed to help. The starting point for our reforms is that the current child maintenance system is broken. Only half of all children benefit from an effective arrangement, despite the Government spending almost £0.5 billion each year on the child maintenance system.
The system places far too much emphasis on the state determining financial support and not enough on supporting separated and separating families to reach their own arrangements. Too many parents feel trapped in the system, which can entrench conflict and encourage hostility between parents, reducing the likelihood of continued co-parenting. Our surveys tell us that half the parents in the existing child maintenance statutory schemes administered by the Child Support Agency would, with the right help and support, be likely to make their own arrangements. This all needs to change.
Noble Lords will know that the Government are committed to rebalancing the child maintenance system to support families to make collaborative, family-based arrangements. Children benefit where parents work together. We are investing £20 million over the next three years in help and support for separated families in order to help co-ordinate existing support services to make it easier for parents to know where to turn when they separate. However, we recognise that not all parents can make family-based arrangements, so we will introduce a new, fairer and more efficient but still heavily subsidised statutory scheme for those who most need it. No doubt noble Lords will have views on our proposals for charging for using the new scheme, which I do not propose to dwell on today. Noble Lords will know that the Government are presently consulting on the charging regulations. After the consultation, Parliament will have an opportunity to debate the charging regulations package. As noble Lords will remember, I made a commitment to involve them fully in that process outside the formal part of it.
I shall move on to the detail of the two sets of regulations themselves in a moment, but first I will briefly touch on the benefits of the new scheme. It will benefit from better links with other parts of government and clients will therefore receive an improved service. We will be able to process applications more quickly and tackle those parents who miss a payment much more rapidly. The scheme will be introduced using a pathfinder approach in the coming weeks. As we have always said, our priority is to go live first time with a system that works for clients. We are currently undertaking our final round of testing and training to enable us to go live by the end of the year. Initially, we will accept new applications on to the scheme where four or more qualifying children with the same parents are named in the application. When the new scheme is seen to be working well, we will open it to new applications where there are two or more qualifying children with the same parents, and thereafter to all new applicants.
The draft Child Support Maintenance Calculation Regulations 2012 set out the new rules relating to how child maintenance will be calculated, including how income is determined and the circumstances in which the calculation may be varied. They will apply to applications for child maintenance under the new scheme. The regulations will also tackle some problems that have been identified with the existing regulations. They will introduce the following main changes.
Maintenance calculations will be based where possible on the non-resident parent’s latest tax-year gross income as reported by HMRC. Assessments will depend less on what parents choose to disclose about their income, ensuring a fairer and faster child maintenance service. For the first time, maintenance calculations will be reviewed annually using the most recent income information provided by HMRC to ensure that they remain fair, accurate and up to date. At the moment, cases are reviewed only when either parent contacts the agency to report a change in circumstances, which means that some cases have not been reviewed for many years. In-year income changes to the calculation will not be made unless the non-resident parent’s income changes by at least 25%. This will make it easier for parents to budget, giving them greater financial security and promoting financial responsibility.
Students with a significant gross weekly income will no longer be exempt from paying child maintenance. An assumption of shared care equivalent to one night per week will be made where parents agree in principle that there is shared care but cannot agree on the number of nights. Parents who share the care of their children exactly equally will no longer be required to pay maintenance through the statutory scheme, resulting in both parents being treated fairly. Parents with care will no longer be required to provide evidence to support an application for a variation of the maintenance calculation as income information will be available through HMRC.
These regulations do not include assets and lifestyle- inconsistent variations. They replace these with expanded “unearned income” variations that capture a non-resident parent’s taxable income from property, savings and investments including dividends, and other miscellaneous income declared to HMRC. The intention is to base maintenance calculations on income details available through HMRC, thus reducing the burden on parents with care to provide supporting evidence when they apply for a variation. I believe that this will allow more parents and their children to benefit from maintenance valuations that genuinely reflect the income of the paying parent in the case.
To encourage parents to make their own maintenance arrangements, children supported outside of the statutory scheme through a family-based arrangement, court order or under child maintenance schemes abroad will be acknowledged in the same way as qualifying children within the maintenance calculation. The non-resident parent will be required to provide evidence of a formal or informal agreement that ensures they are paying for a child before this change is applied in a particular case.
The Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012 lower the percentages by which a non-resident parent’s gross income is reduced to take account of relevant other children living in his or her household. This will ensure that the maintenance calculation makes a more equal allowance between the children who are the subject of the maintenance calculation and any relevant other children who live with the non-resident parent. They also set out the minimum amount of liability where the non-resident parent is party to another maintenance arrangement which they wish to have taken account of in the maintenance calculation.
These regulations will, first, reduce the percentages applied to relevant other children to better equalise the treatment between first and second families. Let us take an example of a non-resident parent with a gross weekly income of £300, one relevant child and one qualifying child. Without these changes, the non-resident parent’s income would be reduced by 12% to make allowance for the relevant child—a reduction of £36. The reduced gross weekly figure of £264 is then carried forward; 12% is then applied to £264 to calculate the maintenance for the qualifying child, resulting in a liability of £32, so there is a £4 difference between the amount notionally allowed for the relevant other child and the amount calculated as payable for the qualifying child. Using the same example but with the 11% reduction for the relevant child proposed in these regulations leads to a difference of only £1 between the amounts allocated for each child, so, as far as possible, the same financial provision will be made for all children within the maintenance calculation.
These regulations will, secondly, make the minimum liability for a non-resident parent subject to other maintenance arrangements for other children at £5 per week, keeping it in line, as intended, with the flat rate of child maintenance which is payable by a non-resident parent whose gross weekly income is more than £5 but less than £100 per week, or who is in receipt of certain prescribed benefits.
The Government consulted stakeholders publicly on proposed measures between 1 December 2011 and 23 February 2012. As part of the consultation process, the previous Minister for Disabled People also met with key stakeholders together with officials at a stakeholder meeting held in January to get their views. We received 36 responses to the consultation. Respondents to the consultation were generally supportive of the draft regulations and the points raised were considered when finalising the regulations. I beg to move.
Lord Freud
My Lords, the debate has strayed somewhat from these regulations, most substantially into the readiness of IT. I shall try to deal with that issue full on, because it is a fair question.
The concern is that the new system is late and will not work, and the normal things that people get concerned about with IT were raised. There is clearly a balance here to be struck as regards making sure that you deliver what you are intending to deliver in terms of savings and product, and making sure that it works. You fine-tune that as you get closer and closer and you know more. Regarding the timing, as my noble friend said, we were planning to start in October. It will be a few weeks after that when we will really go in on phase one, but in the scheme of things, it is a few weeks late but will come in safely because we are currently testing to make sure that when we start the system is working. The general point I was asked was: will we go ahead before we are confident that the system works? I can give an absolute assurance, and repeat what the Permanent Secretary said, that we will not go ahead until we are confident that the system will deliver for both the client base and the taxpayer.
The first phase will go ahead in a matter of weeks. As regards the numbers that my noble friend was interested in, we will begin incrementally. In the first phase, we will start off with literally 100 or 200 cases a month for the first, say, four months. We then move up rapidly in the next couple of months to 3,000 or 4,000 cases a month. After six months, when we take over all the new intakes, we will be dealing with 10,000 cases a month. That is the planned progression. Again, as regards the question of the noble Baroness, Lady Sherlock, on when we will press the button, I should make it absolutely clear that we will not do so unless we are confident that this works. Everyone here knows the history, and we are as conscious of that as anyone.
I take the question of personal assurance very seriously. For a lot of the computer systems that we are introducing, and universal credit in particular, I will give personal assurance. This system is not actually part of my personal portfolio. Although I am dealing with it for the House, the reality is that I am not sitting on this particular computer system with quite the same ferocity—
Lord Kirkwood of Kirkhope
My Lord, that is what worries me. Is it still the case that the target date for the introduction of phase two is July 2013, with a few weeks’ slippage?
Lord Freud
We are still on that timetable, absolutely. But we will be flexible as a department. The one piece of advice that the Public Accounts Committee has given to us as a Government, and to the last Government, is to feel our way into these things, to be flexible, pathfind the way and build from there. So we are taking that advice. We cannot have it both ways. This means that there is not a date on which we must press the button, and if we do not press the button on that day we are late, it is a delay and a fiasco. I believe it is wrong of us as politicians to play with computer systems in that way. It is not the right way to do it. We must go in steadily and introduce these systems in a smart, incremental way. That is the lesson that we have learnt from some superhumungous tragedies. When it comes to computer systems, the Government get a lot of the stick for bad computer system introduction. This is because Government computer systems are publically known. The private sector has just as many snafus with computers as the public sector, it is just that they do not make them public.
This ties in neatly to the point about four schemes in parallel, from the noble Baroness, Lady Sherlock. We already have three systems running in parallel, and this new system will be more automated and more efficient than those. By using the pathfinder approach that I have described, the new system will be working well before we introduce it full tilt. If the new system is working and sustainable with the kind of volumes that I described, then we will be able to manage the four systems that we will have under our hand at any one time.
Baroness Sherlock
I am grateful to the Minister. As I understand it, one of the arguments for the new system was that, as it would be more efficient, there would be fewer staff needed to run it and it would be cheaper et cetera. I know that that may all be up for grabs, but is the Minister confident that the kind of cuts in resource that CMEC had before its transition will leave enough staff to be able to run this? I understand the point he makes about agile development and wanting to take time to run the system in before shedding its predecessor systems. However there is a danger, as seen both here and with housing benefit. As each new system has come in, everybody has been assured that the new system will be the thing that will render all previous systems unnecessary, but all that has happened is an accretion of systems. I just want to be confident that he feels that he has the resource to manage all these systems for as long as it takes, because otherwise people stuck on the earlier systems could suffer and find their situation getting worse, not better.
Lord Freud
Yes, my Lords. The approach is to bring in a new system, which is efficient and automated, at a level that does not consume a lot of resource to start with. You are running your existing systems with the resource that they require. As you ramp up the new system, it starts to establish itself, because you are doing it on a careful pathfinder basis that maintains that automation and efficiency. Then you can start, in practice, reducing the load on the other three systems. That is how you get the gains by doing it, and that is why it is so important to ramp up the new system so that it does not throw a huge amount of clerical work back into the system to compound the clerical overload. We are still running 100,000 cases clerically in one way or another. It may appear a bit smoother to the outside world now, but every £100 transferred is costing the state £35, and that is not something that any Government can tolerate. That is the process: get something efficient; roll it out when you know that it works; build it up; and then start to work down your existing portfolio. That is the process.
The noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, asked about assets and lifestyles. The reality is that that provision was very difficult to use, as everyone involved knows. It was not a successful mechanism for the parent with care to use. Capturing actual income is far more meaningful for parents and far more administratively achievable, which is why we switched over to that approach.
The minimum flat rate of £5 has not increased since 2003 and will remain until the new scheme is fully open to all new applicants. I fully accept the point made by the noble Baroness, Lady Sherlock, about whether it is compatible with UC. At some stage in the future, it may be possible to look at tapers and matching it up, but it is too soon to do that. I accept the general point, but I do not think we are there yet.
The noble Lord, Lord McKenzie, asked about ignoring unearned income in the calculation. We are making the main calculation on taxable employment income, trading income or pension income because HMRC holds that information for the vast majority of taxpayers. Taxpayers who are not liable for self-assessment are not required to declare income of less than £10,000 per year from savings and investments. It would be unfair to take account of unearned income details sourced from HMRC and not pursue parents who had that income but were not required to declare it. Asking non-resident parents to supply that information would be to repeat the delays of the current schemes where non-resident parents are often unco-operative. A parent with care can apply for a variation to take account of unearned income. It is the same with shared care. The noble Lord was right that where it was agreed that there was shared care and the disagreement was about how much it was, the one-seventh assumption would come in. Where there was no agreement that there was sharing, it would have to be done by way of variation.
On taking account of pension schemes, the new scheme will, as now, allow contributions to an occupational pension scheme to be deducted from income, with the resulting figure used to calculate child maintenance. There is no limit on the amount of contributions that can be deducted. That is not a change in the existing system.
Lord McKenzie of Luton
I apologise for interrupting the Minister. The question I asked there was: if it is a net pay arrangement, does it get dealt with automatically via HMRC? If it is not, then it requires the non-resident parent to do something, to say, “I am making these contributions and want that reflected”. My question was whether there would be any prompt to the non-resident parent because many would not necessarily know that that was available to them.
While I am on my feet, perhaps I can go back a bit to this issue of variations, lifestyle and all that. We accept the difficulty in identifying unearned income, particularly that which does not have to be reported to HMRC. Why would it not be in every parent with care’s interest automatically to seek a variation on the basis that the non-resident parent may well have some unearned income, simply to see what comes out of the pot? Effectively, HMRC will automatically have to look at that.
Lord Freud
May I offer to write on that issue? We are layers down. Rather than dealing with that impromptu I will aim to write, as I will on how the prompts might work for the non-resident parent on their pensions. Again, that is getting to a level of technicality that I do not have at my fingertips. On tax credits, ignoring that loses 100,000 families about £6 a week in maintenance. Both noble Lords made that point. Again, that is an attempt to get rid of a level of complexity and drive through simplicity. We have set the percentages and thresholds to ensure that changes in liability are minimised except where, as a flat rate, we deliberately intended to raise them. We expect more than half of non-resident parents to pay more than under the current scheme.
Baroness Sherlock
Does the Minister accept that those who will pay more and the lone parents with care who are getting less may not be the same pairs of people? Obviously one cannot assume that the poorest parents with care are necessarily partnered to the poorest non-resident parents, but actually research shows that broadly speaking it is not uncommon for partnerships to be among people of very similar socioeconomic backgrounds and demographics. Is the Minister conscious that, even if overall many non-resident parents are paying more, the poorest parents with care may end up getting less as a result of the fact that the poorer among the non-resident parents are having this income ignored?
Lord Freud
I am not sure I have a precise breakdown within the socioeconomic groups to do that analysis. I will look later to see if I can send the noble Baroness some information on that. I am not sure off the top of my head that I know how that balances out but I will see what I have and include it to the extent that I do.
Baroness Sherlock
I am very grateful for that. Also, if that is not the case, I would settle for an alternative justification of the decision.
Lord Freud
I will either produce information or a justification.
On the war pension point made by the noble Lord, Lord McKenzie, a war disablement pension is considered a prescribed benefit, in which case the flat rate of maintenance will apply. A parent with care can apply for a variation to take account of any additional income received by the non-resident parent.
On the 12-month rule and the position with the Scottish minutes of agreement, we are in discussion with the Ministry of Justice and colleagues in the Scottish Government to ensure that the statutory maintenance system and the family justice system both north and south of the border work together as effectively as possible in the interests of parents and children. We are hoping to meet family lawyers’ representatives in England and Wales and Scotland to discuss this soon. However, I should say that at this point we are yet to be convinced that there is a compelling case for legislative change.
In reply to the question from the noble Baroness, Lady Sherlock, on the level of information and evidence required from a parent with care to make an application for variation, the link with HMRC means that the department has immediate access to a non-resident parent’s income information, which removes the requirement for the parent with care to supply substantial evidence of the non-resident parent’s financial circumstances. That means that fewer applications will be rejected at the preliminary stage and makes it easier for the parent with care to apply for variations. I believe that I have dealt with all the questions.
Lord McKenzie of Luton
Perhaps I may briefly revert to the issue of shared care when it is equal shared care. Obviously if both parties agree that there is equal shared care, they would not be in the system anyway because no maintenance would flow from it. Clearly it is potentially in the interest of the non-resident parent to claim equal shared care because then there would be no maintenance liability. What will the process be for determination of that and whether any form of appeal is attached to it?
Baroness Sherlock
One of the questions I asked was in relation to preparing parents in the current system for moving across to the new system, in particular transitional protection. I apologise if I missed the Minister’s answer.
Lord Freud
On transitional protection, the basic approach is that these rules have been very difficult to operate and our intention is to have very simple rules that are capable of being applied to the majority of parents. While there may be winners and losers, we expect there to be relatively few large losers. Many of them are likely in any case to go into a family-based arrangement, which may be a better option. That is the reason for not planning transitional protection. We will be providing an expanded service of information and advice to customers before the launch of the new system, to be called “Help and support for separated families”.
The way it will work is that if there is equal shared care and there are no payments either way, both parents have to agree that. If there is no agreement, we will go to the one-seventh proportion; that is, one night of shared care. We will accept verbal information about shared care, but both parents must agree. If they do not do so, we then move into the more formal process.
I am down to a very few issues on which I can now write to noble Lords, otherwise we will be here all night. There will be plenty of opportunities to debate these issues since further debates on the child maintenance system are coming up, and I know that many of us are looking forward to those. However, these regulations are narrow in scope and focus on simplifying the statutory child support scheme, improving the service to clients, reducing the costs to the taxpayer and increasing the flow of maintenance payments to children. I am heartened by the fact that there is support in principle, albeit that I will provide some more detail. On that basis, I commend this instrument to the Committee.
Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012
Lord Freud Excerpts(11 years, 7 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Child Support Maintenance (Changes to Basic Rate Calculation and Minimum Amount of Liability) Regulations 2012.
Relevant document: 6th Report from the Joint Committee on Statutory Instruments.
Housing Benefit (Amendment) Regulations 2012
Lord Freud Excerpts(11 years, 10 months ago)
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Public Bodies (Child Maintenance and Enforcement Commission: Abolition and Transfer of Functions) Order 2012
Lord Freud Excerpts(11 years, 10 months ago)
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Lord Freud
That the draft order and regulations laid before the House on 23 April and 14 May be approved.
Relevant documents: 1st Report from the Secondary Legislation Scrutiny Committee; 1st and 2nd Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 12 July.
Credit Unions
Lord Freud Excerpts(11 years, 10 months ago)
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Lord Kennedy of Southwark
To ask Her Majesty’s Government what are the next actions they plan to take in support of the continuing development of credit unions.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, credit unions provide people on low income with access to financial services and loans. More can be done to support credit unions to modernise, serve more people and become self-sustainable. Therefore, on 27 June, I announced that we are going to provide £38 million to fund a new credit union expansion project and that the Government will be consulting on credit union interest rates, as recommended in the credit union feasibility study published on 10 May.
Lord Kennedy of Southwark
My Lords, in the UK today, 1.4 million people have no bank account and 7 million people use high-cost credit, whether it is payday loans, home credit or pawnbrokers. My frustration is that development is still very slow and more could be done to develop the sector. Will the Minister agree to look at what contribution the high street banks could make towards developing the sector? In particular, could they be persuaded to second staff to work in the sector to aid its development? I believe that our banks should make a contribution to the sector to provide financial products at an affordable cost that they themselves will not provide.
Lord Freud
My Lords, we have a procurement function going on with the credit unions, which will start shortly, in terms of how they can modernise and improve. It may well be that there are contributions that are not financial but intellectual that the credit unions can add. We are currently having a series of working parties with the retail banks as we develop the requirements for universal credit and financial inclusion.
Lord Cormack
My Lords, I greatly welcome my noble friend’s commitment, but can we accelerate things? In this age of rapacious loan sharks, credit unions could be of real help to many people who are struggling on very low fixed incomes. Could we please have a little more expedition?
Lord Freud
My Lords, the whole point of this exercise is to expedite the growth of the movement. There are currently 1 million members of credit unions. The target that we have set is to double that within five to seven years and to make credit unions self-sustaining, which they currently are not.
Baroness Sherlock
My Lords, I am very glad that the Minister has given us that target of 2 million people but, in the light of the figures given by my noble friend Lord Kennedy, if 7 million people are using high-cost credit at the moment, with the extortionate interest rates of doorstep lending, is 2 million too unambitious a target? Should the Government not be shooting for a far higher figure?
Lord Freud
My Lords, we have to build an industry that is self-sustaining. That is the vital priority. It is no good piling money into an industry that cannot effectively absorb it. It is vital that we get this right, and this expansion project is the right way to go.
Lord Kirkwood of Kirkhope
My Lords, my noble friend’s announcement of the extra support for credit unions is immensely welcome, particularly because after April 2013 the discretionary social fund will no longer be available to give community care grants or crisis loans. Will some of the £38 million that he has announced, which is extremely welcome, be used to advertise the existence of the social enterprises that usually constitute credit unions? One of the biggest problems is that people do not know about them. If Jobcentre Plus and prime contractors to the work programme were made to advertise the availability of these services, it would help them enormously to make progress in future.
Lord Freud
My Lords, that is something that we need to look at closely. One of the things that we are doing in the housing demonstration projects is tying the credit unions into the direct payment structure, and that has been very helpful. As we build out that system, the role of credit unions can be used and advertised in that way. As for the £38 million, that is for the credit unions themselves to decide how to use, and we will be taking bids and working out that process over the next half year or so to find out how that money can be used most effectively.
Lord Clarke of Hampstead
My Lords, welcome as the consultation is, it should include something about children getting involved. In St Albans District Credit Union, in which I declare an interest, there is a nice scheme going on where youngsters come in on a Monday, give their money and get that put in their book. Establishing the pattern of saving, which is one of the key principles of credit unions, could be an advantage if people were exposed to it nice and early. Will the Minister discuss with his friends in the Department for Education the possibility of getting into schools and working with credit unions in that way?
Lord Freud
My Lords, something over 10% of members of credit unions are youngsters—over 100,000. That is useful and valuable for youngsters. However, I emphasise that what we are looking at now is trying to build an industry that can sustain itself. That must take priority, and that is what the money is for.
The Lord Bishop of Newcastle
My Lords, while I, too, welcome the Government’s support for the growth of credit unions, and recognise that some changes in the regulations are going to come in this September, what will the consequences be for the very smallest credit unions that are still serving some of the poorest and most vulnerable people in our society?
Lord Freud
My Lords, what we are looking for in the bids is substantial change. Smaller credit unions can take part in those bids in combination with groups of credit unions. In fact, we are expecting consortia to form to use this money most effectively.
Public Bodies (Child Maintenance and Enforcement Commission: Abolition and Transfer of Functions) Order 2012
Lord Freud Excerpts(11 years, 10 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Public Bodies (Child Maintenance and Enforcement Commission: Abolition and Transfer of Functions) Order 2012
Relevant documents: 1st Report from the Secondary Legislation Scrutiny Committee, 1st Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, the order was laid before Parliament on 23 April under the powers granted by the Public Bodies Act 2011. It provides for the abolition of the Child Maintenance and Enforcement Commission and the transfer of its functions to the Secretary of State for Work and Pensions. I am satisfied that this instrument is compatible with the European Convention on Human Rights.
Before addressing the order in detail, I emphasise that there is no intention to change the services currently delivered by CMEC when its functions are transferred. The promotion of financial responsibility and child maintenance, the provision of information and support and the delivery of the statutory service will all continue. However, it would be helpful to provide some background on CMEC and the proposed abolition and transfer.
CMEC was established by the Child Maintenance and Other Payments Act 2008 and took over responsibility for the child maintenance system in Great Britain. Its primary objective is to maximise the number of effective child maintenance arrangements in place for children who live apart from one or both of their parents, whether these are made collaboratively between parents through family-based arrangements, by court order or through the statutory scheme. To achieve this objective, CMEC has three core functions: promoting the financial responsibility that parents who live apart have for their children; providing information and support to help parents make effective maintenance arrangements; and providing an efficient statutory child maintenance service with effective enforcement.
CMEC currently has two delivery bodies: Child Maintenance Options, which provides a free and impartial information and support service, and the Child Support Agency, which continues to administer the two existing statutory maintenance schemes. Together they are staffed by some 8,000 committed and dedicated people but, despite their best efforts, CMEC does not properly achieve its key purpose. Noble Lords are well aware of the complexities, inefficiencies and poor IT that have been a well publicised feature of the existing schemes but, crucially, around half of children living in separated families do not benefit from effective child maintenance arrangements—that is more than 1.5 million children.
CMEC costs taxpayers £500 million a year, but at present the Government spend less than 10% of that on positively helping families to address relationship issues or helping them to work together for the benefit of their children. That is why the system needs reform, and that is what we are working towards. I know that there will be particular interest in the planned reform of the child maintenance system but I do not propose to dwell on those matters here. I will write to noble Lords soon, inviting them to a meeting to discuss our proposals in more detail.
The proposal to abolish CMEC was announced as part of the Public Bodies Bill review on 14 October 2010. The review’s overriding aim was to increase transparency and accountability as well as to cut out the duplication of activities. Three criteria were set out by the Minister for the Cabinet Office in the Public Bodies Bill review which determined whether a body or function should be delivered at arm’s length from Ministers. I am satisfied that CMEC does not meet any of these criteria because, first, it is not a technical or fact-gathering body that needs independence, nor does it require political impartiality to discharge its responsibilities, nor does it need to act independently to establish facts. CMEC performs an administrative function and the services that it provides should be managed within the Government rather than by a non-departmental public body.
Child maintenance is an important part of the Government’s central aims and objectives in supporting families, particularly the 3 million-plus children living in separated families. It is right that Ministers should be directly accountable and responsible for the operational delivery, strategic direction and policies relating to child support without an additional layer of external management, as currently exists with the CMEC board. As I have already mentioned, the current system needs reform, and the proposed integration into the Department for Work and Pensions will enable us to do that much better. In the longer term, efficiencies can be achieved and I am convinced that the change will enable a better service to be provided to parents and children.
In accordance with requirements of the Public Bodies Act, which this House requested, a consultation on the abolition of CMEC ran from 10 October 2011 to 3 January 2012. Only 11 responses were received, a rate that indicates that this really is not a contentious change. Indeed, five responses were broadly supportive of our proposals, either agreeing with or welcoming the change, albeit with some minor concerns. Three responses disagreed or asked for reconsideration. One respondent had no comments to make and another had misunderstood the consultation criteria.
The order was laid on 23 April 2012. Orders under the Public Bodies Act have a minimum 40-day scrutiny period, with a Committee of either House able to extend that to 60 days by resolution if it feels it is necessary. The order has been scrutinised by several committees within Parliament: in this House by the Secondary Legislation Scrutiny Committee, as it is now called; in the other place by the Work and Pensions Committee; and collectively by the Joint Committee on Statutory Instruments. None of those committees chose to trigger the optional 60-day scrutiny period.
The Secondary Legislation Scrutiny Committee reported on the order on 15 May and concluded that it increased direct ministerial accountability by reversing the provisions of the Child Maintenance and Other Payments Act 2008. In the other place, the Work and Pensions Select Committee held an evidence session on the draft order on 25 April, which the Child Maintenance Commissioner and the Minister for Disabled People attended. The committee raised a number of issues, including how CMEC’s current objectives and functions would be pursued, how its activities would be reported following the transfer and whether the transfer could be justified on the grounds of improving value for money.
Lord Kirkwood of Kirkhope
My Lords, I am delighted to follow the noble Baroness, Lady Sherlock, because she said just about everything I had in mind to say. I concur with the important points that she made.
I am very pleased that the noble Lord, Lord Freud, offered us a meeting later in the year. That is part of his unique way of doing business and it is very helpful to the rest of us as we try to understand what is going on. I understand that he and his colleague in the other place are putting a great deal of work in to this important area.
I will stress—because it is easily forgotten—that the client group with whom we are dealing may be disproportionately affected by the impact of the austerity measures that the country faces. I am sure that the Minister and his advisers are already aware of this. As a board member of the Institute for Fiscal Studies, perhaps I could draw his attention to the analysis by James Browne that was published by the IFS for the Family and Parenting Institute in January 2012. It predicted an 8% net loss of income for working single parents and a 12% loss for non-working single parents. We are dealing with a particularly vulnerable client group here, and we all know that. The IFS analysis is useful as a reminder of the importance of getting it right. I know how concerned the noble Lord, Lord Freud, is about these vulnerable groups because he is doing a lot of work on universal credit to try to make sure that these issues are addressed.
In addition to the points addressed to the Committee by the noble Baroness, I will say that other NAO and PAC reports that came out earlier this year—particularly on client fund accounts and on CMEC’s plans to reduce its own spending, which was in an NAO report on 12 February this year—raised matters about which we should all be concerned, including the ability of CMEC to achieve its estimated £117 million savings between now and the fiscal year 2014-15. That is something I would like to put on the agenda for the meeting later in the year, which I would be very pleased to attend—if I get an invitation after this speech.
The NAO was also concerned about the plans to levy charges. I do not need to repeat the point that there is some disjunction between the early planning and the work that the NAO did in highlighting some of the gaps. This will have been worked on and I hope that there will be further and better particulars available. At any future meeting I would like to try to understand how much risk there is in the levying charges policy that is currently being publicly promoted, at least by CMEC.
I agree with the NAO analysis about planning for a 71% take-up of the new statutory system. I have no way of knowing the metrics, systems or processes that CMEC has for measuring that 71%. It is relying very heavily on that as an income stream from which it hopes to move forward. The Comptroller and Auditor-General, the NAO and the PAC were interested to learn more about that, and again expressed concerns. I will also reinforce the point about maximising payments. That is an important duty that will be lost. Any system, whether or not it involves annual reports, should underpin efforts to win back as much of that as we can in the circumstances. That would be useful.
Finally, we still expect a consultation on charging mechanisms. That is a very important piece of outstanding work in which the community, pressure groups and others to whom this area of public policy applies are particularly interested. Perhaps we could add that to the agenda of what now looks like quite a busy meeting some time in the autumn.
This is an important area. I am very ambivalent about this change but I can understand that the costs have to be reduced in a sensible way. I just hope that we are able to do that in a way that does not disproportionately affect the client group we are seeking to serve here. But I have trust that my noble friend Lord Freud is aware and alive to all these things. I hope that the Committee can look to him to give us reassurance, whether privately or publicly, going forward.
Lord Freud
My Lords, as ever, there have been some very thoughtful and knowledgeable speeches. Why am I not surprised? I will set the context of the process we are going into in terms of consultation. I deliberately kept my speech very focused on this order. As we are all aware, there are a lot of issues around CMEC charging generally, which we will have a lot of time to address. As I said in my opening remarks, I plan to write to noble Lords reasonably soon. I made a commitment to involve noble Lords particularly in the charging process and the plans that we have. I said that I would do that at two points: first, at the outset in order to allow noble Lords to see plans at the beginning as we develop and discuss them and, secondly, before regulations are laid towards the end of the process as the debate has gone through. There is time outside the formal calendar in which to go through this.
I am conscious that when things are difficult—and in this area of child maintenance there is a lot of sensitivity and concern—an involved process is much better than just slamming a set of regulations on the desk. That is why I have done it in that way and have made some cuts. We could easily spend all night on this and I am trying to concentrate just on the core transfer.
There were quite a few questions from noble Lords on the reporting process and the data process. The group will be included in the DWP’s annual report and accounts. It will continue to publish a quarterly summary of statistics of child maintenance and the figures will be included in the biennial Understanding Society survey. We will respond to the question asked by the noble Baroness, Lady Sherlock, and the PAC through a Treasury minute, which will be published in the near future. I do not have a translation for “near future”, so we will have to go on the commonplace interpretation of what that means.
My noble friend Lord German asked about historic debt and our strategy. It remains a priority. We have a debt of £3.8 billion outstanding. We want to collect as much of that as we can and are using all the powers available to us to do so. He also asked about effectively co-ordinating family support services. A number of principles are involved here: we need to make sure that families have the right information when they separate and that they are encouraged to have a collaborative relationship. That, as noble Lords are fully aware, is a core part of the Government’s strategy here. In the main, services will be voluntary and community sector-led. That is why we have formed a steering group of representatives from the sector to inform our thinking and propose how best to evolve those services. My colleague, the Minister for Disabled People, Maria Miller, announced in January that £20 million was available to support this work and on 25 June she confirmed that £14 million of it would be placed in a new innovation fund to finance effective and innovative interventions. I will not go into that in any greater detail.
Lord Freud
Actually, I would like to turn that around on the noble Baroness; I will accept a letter from her on the lessons from history, and I will pass it on and make sure that they are applied. I look forward to receiving that.
On my noble friend Lord Kirkwood’s question about how we will achieve the savings, we are talking about securing ministerial accountability—this is not about driving savings. The amount of savings from this measure is pretty modest: direct savings are probably running at about £500,000 a year, and that is due to changes to IT systems and one-off costs. We would hope to see longer-term savings from integrating services more deeply into the department. I think, and this point was raised by my noble friend Lord German, that there are some real opportunities here to get holistic support. The longer that I have been in this job, the more I have realised that bringing support together for people and families in trouble is the way to go. There is an opportunity for us to pull the services together in this context as well as in other contexts.
I am tempted to offer to write to the noble Lord, Lord McKenzie. I always feel that it is a triumph if I can get out without offering him a letter because I can answer all his very clever questions. I think that I am down to the one on adverse tax consequences. Although it is always difficult to prove a negative, I cannot imagine how there can be adverse tax consequences because we do something in the middle of the year, when they are both effectively Crown bodies. If that is a wrong tentative statement, I will commit to write, but I hope that I will have avoided any need to put pen to paper for him on this occasion; that would be one of my personal targets. This is about making sure that Ministers are fully accountable to Parliament.
Lord McKenzie of Luton
So that the Minister does not have to commit anything to paper, will he deal with the question about the enforcement powers? There is a whole raft of them in the 2008 Act. Those are all presumably going to be taken over by DWP. Where is the department on bringing those into effect?
Lord Freud
My Lords, the noble Lord is right: we just transfer those powers over. There is no change in them. As to the detailed timetabling of all that, we are preparing to show that to noble Lords. The easiest way is if I come to that, unless I have a miraculous answer—which I do not think that I have to this specific question. I will deal with that when we assemble, quite soon, on that issue. I will not write.
I close by reassuring noble Lords that ensuring that children get the support that they require, both financial and otherwise, when their parents cannot live together and ensuring that they have the best opportunity to thrive during their childhood is what this is about.
Social Security (Civil Penalties) Regulations 2012
Lord Freud Excerpts(11 years, 10 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Social Security (Civil Penalties) Regulations 2012
Relevant document: 2nd Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights.
These regulations support the powers introduced by Section 116 of the Welfare Reform Act 2012, which allow both the Secretary of State and local authorities to impose civil penalties in relation to benefit claims and awards in certain circumstances. That section allows for the amount of the penalty to be set by regulations. Our reason for bringing forward these regulations is straightforward. It is right that claimants should take responsibility for the information which they provide in order to receive benefit, or to notify us of important information affecting their entitlement. Claimants are in the best position to tell us of these facts and of these changes as soon as they occur. When you consider that £1.3 billion is lost each year as a result of claimants who fail to do this, it is clear that we have an immediate issue to address.
Introducing a civil penalty will help to make claimants more personally responsible for the overpayments they incur and encourage a positive change in future behaviour. We remain committed to tackling the intolerable financial loss through claimant error and the regulations before the Committee support that aim, the detail of which I will now explain.
In bringing forward these supporting regulations, we have set the civil penalty at £50 in all three cases where a penalty may be imposed. The amount of £50 was previously announced in government publications and was stated by me and my honourable friend in another place during the passage of the 2012 Act. I trust, therefore, that the penalty level is no great surprise today. In setting the penalty at £50, we aim to be tough but fair in our approach. It is also a significantly lower amount than the harsher consequences which would apply to those who commit benefit fraud offences. The penalty is directed at a failure to take proper care of a benefit claim, as distinct from fraud. We believe that £50 is an appropriate amount for the penalty level. It is high enough to encourage claimants to take more personal responsibility for overpayments incurred through their negligence as well as encouraging a positive behaviour change in any future dealings with the department. The penalty will be simple to calculate and easy for the claimant to understand and recognise. Providing for the same penalty to be imposed in all three cases where they can be imposed will allow for this.
I reassure noble Lords that we will always consider the individual circumstances of the case when deciding whether to impose a civil penalty. To be clear, we must tackle claimant errors which results in losing as much as £1.3 billion each year. This penalty will help us to achieve that. Those who continue not to take proper care of their claim in future will also risk incurring a £50 civil penalty on top of having to pay back the overpaid money. I beg to move.
Lord McKenzie of Luton
My Lords, I thank the Minister for his explanation of these regulations. They have of course already been considered in another place. We do not object in principle to what is proposed, given that some £1.3 billion is lost through claimant error each year. I do not know if the Minister has an update on estimates of benefit overpaid through official error; if he does, it would be of interest to hear what that number is.
As we have heard, the civil penalty is set at £50 for each of three types of error, namely incorrect statements, failure to provide information and failure to notify changes of circumstances. So far as incorrect statements are concerned, they must have been made negligently and reasonable steps not taken to correct the error. In the case of disclosure of information and failure to provide details of changes of circumstances, there is the defence of “reasonable excuse”. It is therefore acknowledged that application of the civil penalty should always require a judgment to be made; the Minister confirmed that.
Can the Minister confirm first that, except in the case of housing benefit and council tax benefit, the judgment will always be made by Jobcentre Plus decision makers and not by contractors? The Minister of State in the other place confirmed that guidance would be available to staff, but we would be grateful if the noble Lord, Lord Freud, could say a little more about that guidance. We have discussed many times the situations of those with mental health conditions, especially those with fluctuating conditions, in connection with the issue of sanctions. The same issues must surely run for the issue of penalties. Can the Minister say specifically what the guidance is likely to cover in this respect?
The Explanatory Note says that DWP will,
“draw on the expertise of interested outside stakeholders to ensure that guidance, communication products and decision making processes are suitably tailored to meet the needs of the range of claimants”.
Might we be told what this has amounted to, to date?
In passing, we had a very helpful presentation on progress on universal credit earlier today. I did not spot anything flagged as part of the claimant process issues around the prospect of civil penalties in the various bits of information we had, but perhaps we missed it in that presentation.
The Explanatory Memorandum states at paragraph 7.7 that where a failure to disclose could cause an overpayment of more than one benefit,
“only one civil penalty will apply”.
What is the situation where the failure relates to an assessment of, say, jobseeker’s allowance and housing benefit? Prior to universal credit being introduced, the appropriate authority for the latter will be the local authority, not the DWP. How will it be ensured that only one civil penalty will arise?
We debated this during the passage of the Welfare Reform Act, but will the amounts collected in penalties accrue to the Treasury, to the DWP or to local authorities? If the latter, how will a single civil penalty be divvied up?
There was discussion in the other place during the passage of the Welfare Reform Act about the anticipated volume of civil penalties—in excess of 500,000—especially in contrast to HMRC data concerning parallel provisions. If this is right, it is a worryingly high volume and calls into question the real level of discretion that will be available in judging whether someone has been negligent or has failed to take reasonable steps to correct an error. What assessment has the department made of the time and cost involved in making these judgments? There must surely be an impact also on the volume of appeals. What does the Minister think this might be?
The provisions apply to the administration of council tax benefit also. As I indicated earlier, we are doing our best for the Minister to have its replacement inculcated within the universal credit through our deliberations on the government Finance Bill but, I am bound to say, some of our arguments are, unusually, falling on stony ground. Should council tax support be localised, the provisions of this order would presumably cease to have effect for local schemes, even the default ones. Presumably one would have to look to the powers in that Bill to see what alternatives might be available.
Because the universal credit is intended to be the great simplification, one would hope that that would make claims and associated issues easier to deal with and would therefore ease the circumstances in which these penalties might be applicable. However, that remains to be seen. We will not oppose these regulations.
Lord German
My Lords, may I explore one item and ask a cheeky question at the end, related to the universal credit demonstration that some noble Lords were able to hear earlier on? Very welcome it was, too.
Paragraphs 9.1 and 9.2, which the noble Lord, Lord McKenzie, has already referred to, are about the guidance that is to be issued. In response to my questions to my noble friend about the way in which decision-makers behave, the answer has invariably been that we must encourage the empowerment of decision-makers. Of course, written guidance does not necessarily help people to use their discretion.
The other problem that is painfully obvious to many observers of the situation is that, when discretion is used, it may not necessarily be uniform throughout Jobcentre Plus offices. There have been a number of occasions, and some of these have reached the media, when decisions have been made on the basis of what may appear to be fairly flexible guidance but has been interpreted in a very literal way. If these penalties are to be most effective, then they are a weapon that has to be used with great discretion. Is my noble friend prepared to outline a little more about the nature of the work that will go on with Jobcentre Plus decision-makers to advise and empower them but also to train them in a method that does not simply consist of reading written materials from the department, and whether he has put in place a reviewing or monitoring mechanism—some way of judging whether that discretion is being used in a fairly uniform way? Nothing could be worse than if people were to rigidly apply rules in one office while next door someone was being treated with discretion and therefore differently. Noble Lords will know that it is difficult to strike a balance between discretion and uniform application. I wonder how that circle is being squared by the department, particularly in relation to paragraphs 9.1 and 9.2.
One of the problems found in the employment support allowance process is that claimants often fail to provide full evidence of their condition until perhaps after the decision has been taken and their appeal is on its way or reaches the tribunal stage. Does my noble friend see any use in the threat of these penalties that might assist people to come back earlier and give their full position and provide all the details in evidence that may be relevant to their claim up front in order that decision-makers might help to get the claim right at the first attempt?
This is a minor and very cheeky question. Under the universal credit, where real-time information is to be provided, is there a double banking system—does the claimant of universal credit also have to report these matters to the department? Is there a double check or, if there is a failure at one end of the system, will the claimant be blamed for what may have gone wrong in, say, information being inputted wrongly by his or her employer? Will any form of double-checking take place? Does the claimant stand any liability for what might happen in that respect?
Lord Freud
My Lords, I shall try to deal with as many questions and to avoid writing as many letters as possible. The noble Lord, Lord McKenzie, asked about the latest figure on official error. The latest figure is £0.8 billion. As regards making sure that one civil penalty will apply, we have put in place processes for decision-makers to check whether a penalty has already been applied for the same failure or error resulting in the overpayment. Only the JCP and the decision-makers, PDCS, are dealing with the non-housing matters. The way in which we ensure that we do not get a double whammy with local authorities and DWP is for local authorities to apply their penalties only when the standard housing benefit or council tax benefit is the only benefit in payment. In that way, there is no possibility of an overlap.
We are drafting the guidance and we hope to share the final draft guidance with SSAC by the end of this month. We will look to share it with other relevant stakeholders at that time to take on board their comments. The guidance will cover the obvious examples of negligence, reasonable steps and reasonable excuses. As one would expect, there will be intensive training, which will explore definitions of the penalty criteria. I do not think that the figures have changed from the impact assessment that we discussed when we were looking at the Bill. The cost is £19 million over 2014-15. The appeals estimate, which we discussed, remains purely an estimate.
In response to my noble friend Lord German’s question on the difficult mix of discretion and consistency, it is important that we have clear guidance about what constitutes the penalty criteria. Each case will be individually considered by a decision-maker. They will have general duties, such as to look at only what is relevant and to explain their decisions to claimants. My noble friend’s idea had not occurred to me. He is more devious than me about using this process to make sure that we do not have different information going to decision-makers and later to tribunals. I think that I shall take that away and think about it, as it is rather clever. That is a design issue that we shall explore.
I say in answer to the noble Lord, Lord McKenzie, that we will monitor the new penalty to ensure that it is effective—and to what extent—and that there is equality of treatment. We will use evidence from a range of sources such as administrative data and wider data sets. In practice, one of the main success criteria will be that we impose fewer penalties as time goes by.
We talked in the past about the fact that we now have a framework for conducting trials much more coherently right through the system. Clearly, we will pick out the key behavioural impacts of different aspects of the policy. How sanctions will work in that area is something that we will look at with randomised control trials. It is a very obvious test and there will be mechanisms for conducting it. We will look at the results very closely, and rather earlier than at the results of other tests, once UC has come in. I hope that I have dealt with all the issues.
Lord McKenzie of Luton
Perhaps the Minister would just confirm whether the penalty revenue accrues to the department or to the Treasury.
Lord Freud
My Lords, I distinctly remember writing a letter to the noble Lord on this matter—and I really regret that I cannot remember what I said. So I will let my letter on the matter stand. Perhaps the noble Lord would look through his files. I have just received a note to say that penalty revenue will go into the Consolidated Fund. I remember writing that now; I laid it out in detail. If the noble Lord would like amplification on that letter, which was quite long, I would be happy to give it to him, perhaps over a cup of tea.
Lord McKenzie of Luton
I am grateful to the noble Lord. That means that the costs associated with the system will fall on the department and the revenue will go to the Treasury.
Lord Freud
Yes, but in reality there will be a transfer one way and then a transfer the other way within the overall DEL settlement. There may be some minor timing discontinuities, but my officials in the DWP are extraordinarily well versed in discussing these matters with equally well versed Treasury officials and getting the flows of funds to work together—so not even tea on that issue.
As ever, noble Lords asked very informed questions. I hope that I have dealt with all of them and welcome the fact that there is general support in principle for the regulations. I commend them to the Committee.
Future of Specialist Disability Employment
Lord Freud Excerpts(11 years, 10 months ago)
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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, with the leave of the House, I will now repeat a Statement made in the House of Commons by my honourable friend the Parliamentary Under-Secretary of State for Work and Pensions. The Statement is as follows:
“I would like to make a Statement on Remploy and I am sure honourable Members will agree that Remploy employees must be first and foremost in our minds today. That is why they have been notified first of the decisions of the Remploy board in advance of this Statement today.
In her independent review published last year, disability expert Liz Sayce made it clear that segregated employment is not consistent with equality for disabled people. The Sayce review sets out that money should support individual disabled people, not segregated institutions, as well as recommending that Remploy factories should be set free from government control.
It cannot be right that the Government continue to subsidise segregated employment, which can lead to the isolation of disabled people. This is no alternative to promoting and supporting disabled people in mainstream jobs, the same as everyone else.
I have been absolutely clear that the £320 million budget for disability employment services has been protected, but by spending it more effectively we can get thousands more disabled people into work. It is important that this money is spent in a way that is consistent with what disabled people want, consistent with this Government’s commitment to disability equality, and consistent with helping more disabled people live an independent life.
When Labour put in place the Remploy modernisation plan in 2008, it started a process with £555 million to put factories on to a proper financial footing. It closed 29 factories as part of this process. What is clear is that the performance targets it set were not realistic, the reduction in costs could not be achieved and the modernisation plan has failed. In 2010-11, factories made almost £70 million of losses—money that could have been used to support thousands more disabled people into work. That is why the Government took the decision to implement Liz Sayce’s recommendations in March to stop funding Remploy factories that have been losing millions of pounds, year after year, but committed to doing everything possible to minimise the number of redundancies.
Today I can inform the House that the Remploy board has considered in detail 65 proposals to take factories out of government control as part of a commercial process. These proposals have been scrutinised by a panel, independent of Remploy, established by the department. The Remploy board and the Government have done all we can to support bids and safeguard jobs. This includes a wage subsidy for disabled members of staff totalling £6,400 and professional advice and support worth up to £10,000 for employee-led bids.
On this basis, nine sites have had business plans accepted and will now move forward to the “best and final offer” stage, where detailed bids will be considered. Back in 2008, when the right honourable Member for Hodge Hill, then Chief Secretary to the Treasury, started this modernisation process and closed 29 factories, there was no such offer. No factories were given the opportunity to continue outside of government control. Remploy is hopeful that these negotiations may lead to the transfer of business and retention of jobs. At the current time, this does mean that 27 Remploy sites will no longer be operating. Details of these sites will be placed in the Library of the House. Remploy employees have been informed of the board’s decision this afternoon. The Remploy board will now move into a period of individual consultation with employees.
Undoubtedly, for those employees who have been told that their factories are closing, this is difficult news. But let me make one point absolutely clear. We are doing everything we can to ensure that Remploy workers who are affected will receive a comprehensive package of support and guidance to make the transition from government-funded sheltered employment into mainstream jobs.
We have put in place £8 million to guarantee tailored support for every single disabled person affected for up to 18 months, including a personal case worker to help individuals with their future choices, as well as access to a personal budget for additional support. We are using the expertise of Remploy Employment Services, which, despite difficult economic times over the last two years, has found jobs for 35,000 disabled and disadvantaged people, many with similar disabilities to those working in Remploy factories. We are working with the Employers Forum on Disability to offer targeted work opportunities for disabled people through the First Shot, including guaranteed interviews, job trials, work experience and training. We have set up a community support fund to provide grants to local voluntary sector and user-led organisations. We have protected the budget for specialist disability employment services of £320 million on average for every year of the spending review period, and we have added £15 million specifically to Access to Work. This means that 8,000 more disabled people will be able to be supported into work as a result of today’s announcements.
This is an ongoing process. Over the Summer Recess, I commit to keeping right honourable and honourable Members—and noble Lords—updated on the status of the business plans going through to the next stage. I will provide a further update on progress when the House of Commons returns in September. Our approach has been led by disabled people’s organisations and disabled people themselves, many of whom have welcomed the move to end the pre-war practice of segregated employment. I believe that it should be welcomed by all sides of the House. By spending these protected government funds more effectively we can support thousands more disabled people in work. What is more, we can spend it in a way that fits the needs and aspirations of disabled people in the 21st century by promoting disability equality and supporting disabled people in leading full and independent lives”.
My Lords, that concludes the Statement.
Lord Freud
Let me clarify one or two points on the numbers. The noble Lord, Lord Collins, talked about 2,800 workers on the scrap heap. The actual figure for the 27 sites we are talking about today is 1,422, of which 1,212 are the disabled group. There is a second process starting in the autumn with the next 18 factories. Those are the numbers that we are talking about.
There were two questions on process. The length of time taken to get this through, end to end, is just over five and a half months from the commercial process launched by Remploy on 20 March, not including the time for locking down the approved bids. We have had 65 bids, which we have boiled down to bids for nine particular factories. There has been an open process during which we have also put in support to provide subsidy for the first two years of £6,400 in the first year, tapering down to £1,000 in the second year. We have tried to find ways for local groups to take part in this process, including finding funds to support employee-led bids. We have run a process which, within the context of commercial and legal obligation, has been transparent and open.
It would not be appropriate or necessary to restart the process as the noble Lord said. We need to remove uncertainty and get on and finish this process in a satisfactory way so that people can work out their futures and take advantage of the very considerable package of support that we are putting behind getting people into alternative work.
Baroness Turner of Camden
My Lords, the Minister will not be surprised that I protest about the decisions which have been made in relation to Remploy, because I have raised the issue previously in debate in this House. He will be aware, of course, that the unions representing their members in Remploy have already protested very strongly against the decisions that have been taken.
Although I understand what the Minister says about it being much better for workers to work with other people and not to be segregated, for many people segregated employment is the only work available and appropriate for them, particularly in the neighbourhoods in which they live. The local siting of Remploy factories is very important.
I believe that the decision has been taken on a number of grounds, not necessarily in favour of the individual workers. There is an ideological attitude here on the part of the Government, who prefer privatisation to publicly owned enterprises. This was a publicly owned enterprise, a government enterprise, which everyone felt for many years was entirely successful. Many of the workers do not seem to have the organisation to effectively protest, although apparently they all belong to unions.
There is also the question of the people who supervise these workers. Supervising disabled people often requires a great deal more skill than supervising in ordinary circumstances, and the people concerned are trained to deal with the disabled people for whom they are responsible.
This is an entirely bad decision. I challenged it when I understood that it was in the process of consultation, and the unions protested at the time. I very much regret that the Government have taken this decision. As my noble friend on the Front Bench said, I hope there will be an opportunity for reconsideration, because there should be reconsideration. This is an important matter to the people who are directly involved, and I would like to protest on their behalf.
Lord Freud
My Lords, the first claim of the noble Baroness, Lady Turner, about segregated employment being the only employment available, is undermined somewhat by the fact that many of the jobs provided by Remploy Employment Services are in the areas where the factories are situated. Indeed it is having a great deal of success in getting jobs for disabled people in non-segregated employment—I think that the figure is roughly 12,000 jobs in those areas in the past few years. Clearly it is tough to get jobs for disabled people but Remploy Employment Services’ remarkable performance shows how, with the right strategies and policies, one can be successful in getting people into non-segregated employment—which is, of course, our central strategy.
I do not think that the noble Baroness really believes that this is an ideological public/private issue. It is about segregated and non-segregated employment and trying to spread money as efficiently as possible among the disabled community. When you compare an operation which lost £70 million in 2010-11 and cost £25,000 year-on-year for each worker supported with Access to Work’s one-off investment, in many cases, of just under £3,000 to help people into non-segregated employment, you have to take these basic value-for-money considerations into account. I therefore commend this approach, which is being done with great concern and care for the individual workers involved, as a far better way of spending our budget for disabled people in work.
Baroness Browning
I share my noble friend’s aspiration for getting the people currently with Remploy into integrated, paid employment. However, this proposal, by any other definition, is something of an experiment by putting so many people into the jobs market at this particular time. I think that he mentioned that each worker would have a mentor and assistance in getting back into work for 18 months. However, I wonder if he would agree that the House should receive a full report from him in 18 months’ time telling us how many people are in contracted paid employment and how many are not. I must say to him that, in evaluating value for money, it is not only the public money that his department spends that would come into the equation. For those who might not be in paid employment at the end of the 18 months we would have to take into account not only the money that they had perhaps drawn in unemployment benefit but also a much wider expenditure which might include things such as mental health costs, physical health costs and costs associated with family breakdown. Those sorts of things—the therapeutic values and costs associated with this group in terms of their stability in the workplace—are not only important to them personally, although that is the most important part, but also involve a cost to the public purse. I really feel that the House should be able to access that information in 18 months so that we can make a judgment on just how successful this experiment has been.
Lord Freud
My Lords, the monitoring of what happened in the 2008-09 closures was not very good—I appreciate my noble friend’s point, and I will look into the nature of the reporting back. There will be information and, if I may, I will specify the nature and timing of the feedback in a letter. I appreciate the point. On value for money, the assessment is that, over the current and the next spending review periods, this move will be worth just over £200 million. That is the context in which we are talking.
Viscount Tenby
My Lords, very briefly, perhaps I may press the Minister on what steps the Government are taking to overcome the reservations that employers might have in taking on disability labour.
Lord Freud
My Lords, we are undertaking quite a major exercise around Access to Work, and one of the areas that we are working on is exactly the noble Viscount’s point about making employers feel comfortable. When Remploy began after the war, manufacturing was a major part of our economy. It is quite hard to be full steam in a steelworks, for instance, if you have a physical disability. As the economy has moved over to the service sector, it is very different, and the idea that many disabled people—certainly physically disabled people, around whom the concept of Remploy was developed—cannot do a whole stream of mainstream jobs is incongruous today. That is what we are talking about in the modernisation process. As I said, there is an issue about mental health. There, we are trying to push Access to Work so that people with mental health issues are pulled in and involved. We have a lot of work still to do about stigma. The Mind campaign has been extraordinary in starting to turn attitudes, and we need to get right behind it. That is a big and important issue to get employers behind.
Lord Addington
My Lords, I shall make a couple of points. First, the point made by my noble friend Lady Browning about reporting back is vital. This is probably the final public step of the process of looking at those with disabilities as individuals as opposed to people who are put away in blocs. I have always felt that the Remploy factories were on a time limit, and the previous Government accepted that. It is never the right time to make that change, and it is particularly unfortunate that it has to be done now, at a time of high unemployment. Can my noble friend assure me that in this process, those who are placing people outwith the specialist teams—normal job centres and secondary support services—are given greater briefing, particularly in the areas where people are being made unemployed? This may well be a useful test case for those who are providing better services overall. Unless we get that process right across the board, we will have merely pockets of good practice, not good practice overall.
Lord Freud
I thank my noble friend for that point. As I said, I will outline exactly how we will report back and timings. The more important point is the level of support we are providing in this case, where we have the personal help and support package, which is considerably tailored with consultation at every stage with, most interestingly, a specific caseworker per person, so people’s individual requirements are analysed and taken into account, plus a fund to help people in. In this case, there is a lot of tailored support. One lesson may well be how important individual caseworkers are in helping people.
Lord Kirkwood of Kirkhope
I have been following the development of this policy area, and it is very difficult. I understand the comments of the noble Lord, Lord Collins, about timing, but I disagree with him. I also disagree with him on his interpretation of the Sayce report. Liz Sayce, who did sterling service to this House and others by writing her report, is looking much more long term and I think that her long-term principles are absolutely correct. We have to get the implementation right to look after the individuals who will be directly and, in some cases, starkly affected by this change. I want an assurance from my noble friend that there will be a comprehensive package of support for the individuals affected.
In particular, as it affects these workers that we are all so concerned about this afternoon, transport access through the Access to Work programme is vital, because a lot of these factories and establishments are in very hard labour market areas. They may have to look further afield to find employment opportunities that are appropriate for their special circumstances.
I am reassured to hear my noble friend mention the individual personalised package. I am also reassured by his undertaking to report back. It seems strange to me that we spend £320 million or £330 million on disability specialist employment services but £7,000 million on disability unemployment services. As the architect of the famous DEL-AME switch I will be looking to him in the longer term—and I hope that these short-term problems are sorted out—to use his ingenuity to try to lever some of the money out of disability unemployment support to employment support in the future.
I support what is being suggested. I just hope we get the individual support packages correct.
Lord Freud
My Lords, I thank my noble friend, who understands this area as well as anyone in the House.
This is not easy—it is a change in direction. However, it does reflect a world which is moving on, away from the physical disability area, into the mental health disability area. There is a lot of work to be done there. We need the money to be used very efficiently. In terms of efficiency, roughly half of the money spent on Access to Work is in achieving things that would not have happened otherwise. In other words, there is, in the jargon, not too much dead weight. Clearly one of the objectives of any Government must be to ramp up the level of efficiency and reduce the level of dead weight as we direct the money to help people who particularly need it. As noble Lords will know, that is something I am trying to push hard, in every direction that I possibly can.
Child Poverty
Lord Freud Excerpts(11 years, 11 months ago)
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Baroness Massey of Darwen
To ask Her Majesty’s Government how they will respond to UNICEF’s recent report on international comparable data on child deprivation and relative child poverty.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, we welcome this contribution to the debate on child poverty. As UNICEF notes, although income matters, eradicating child poverty is about more than income. This Government are investing to tackle the root causes of poverty. In particular, we are improving early intervention, reforming education and, through the universal credit, making work pay. This approach is fundamental to our strategy for tackling child poverty, and we are pleased that UNICEF’s conclusions support this.
Baroness Massey of Darwen
I thank the Minister for that reply. However, first, will he acknowledge that since 1990 a great deal has been achieved in addressing child poverty and deprivation; secondly, can he guarantee that these trends will continue, given the Government’s policies on welfare; and, thirdly, will he support regular reporting back to Parliament on this important issue?
Lord Freud
My Lords, the level of child poverty has come down since 1998 but the cost has been very high. More worryingly, we are now the second-highest spender on transfers to children and families, spending 3.6% of GNP on it—the figure for France being 3.8%—but we simply do not get enough for our money. We are way down the ranking and that is why we need a new approach. I cannot think of a single reason why quarterly reporting would help that but we are clearly committed to reducing child poverty. We are committed to the targets for 2020 and we need to find new ways of achieving them.
Lord Chidgey
As a prelude to the Minister’s consultation with UNICEF, which I think is planned for the autumn, how will the Government explain their plans to address the multidimensional nature of child poverty?
Lord Freud
My Lords, one thing on which there has not been enough focus is the importance of behavioural impacts. Income transfers have their place in tackling poverty but they are simply not enough. Behavioural changes are required, and one thing about universal credit is that it brings a change in work incentives, as well as some very precisely targeted income transfers. Vocational education and apprenticeships in this country have just not been adequate, and we have not looked after vulnerable groups—I am thinking of those leaving care and prisoners leaving prison. We need a large number of strategies to tackle this very difficult problem.
The Earl of Listowel
Education is the key route out of poverty. Will the Minister encourage his colleagues to look still more closely at the Finnish education system, where 20 candidates compete for each teacher training place, where every teacher, whether in primary or secondary school, has a masters qualification and where excellent results are achieved in numeracy, literacy and science? With regard to young people in care, will he consider again looking at the continent, where he will see how much more qualified the staff in children’s homes are compared with those in our country? Surely these are the children most at risk of poverty. Their carers and the people around them should have a high level of qualifications—ones that they can aspire to themselves.
Lord Freud
Yes, my Lords, this is an important point. We have a different approach from many of our continental peers. Looking at the figures, we do not seem to be doing well enough in some of these areas. When there are people who need real support, we need to look more closely at the education of the workforce.
Baroness Sherlock
If the UK is second in transferring money to help children, I personally am rather proud of that. If the Minister does not want to focus on income transfers, will he take this opportunity to reassure the House that when his universal credit comes in he will carry on supplying free school meals to children?
Lord Freud
Let me make clear why I do not think it is good enough. We are second as regards the number of income transfers—that comes out in the UNICEF report—but we are 22nd out of 35 countries as regards relative child poverty. That shows that we are just not getting value for our money. I can say that we are making arrangements to ensure that school meals continue in basically the same way, although longer term I am looking to try to incorporate that in the universal credit even more tightly and to make some improvements.
Baroness Deech
My Lords, is the Minister aware that there is widespread scepticism about relative poverty tables because no matter how much money is transferred to children, relatively there will always be others who have less? It is widely thought that one of the safeguards against poverty is having two parents who stay together, preferably with one of them in work.
Lord Freud
My Lords, there is a lot of debate about how to measure poverty. I believe that relative income measures have an important place, as do absolute measures, but it is quite true that we need to have strategies that go to the fundamentals that create poverty rather than worrying about trying to ameliorate those by income transfers. It is more important to have a balanced strategy.
Lord Avebury
My Lords, why do the Government refuse to extend the pupil premium to Gypsy, Roma and Traveller children who are the worst achievers in all sectors of education, whether measured by achievement, attendance or exclusions? Surely that group qualifies as being the most deprived of all in our schools.
Lord McKenzie of Luton
My Lords, as we have heard from the Minister, universal credit was supposed to be the last word in welfare reform and the route to tackling worklessness and child poverty. It is clear from recent information that it seems to be behind schedule and heading for being overbudget. Is that the reason for the Prime Minister’s latest foray into welfare reform? There are 17 ideas, which are apparently his and some of which he said could be implemented before the next election if he gained the support of his Liberal Democrat coalition partners. On which of the 17 ideas in particular is he trying to get the agreement of his coalition partners? Do they include removing access to housing benefit and the change in the link with inflation?
Lord Freud
I am really pleased to take this opportunity to reply and to tell noble Lords that universal credit is on time and on budget. The Prime Minister is looking at how to pull the welfare system into the future by asking some fundamental questions that we all need to think about.