Energy: Nuclear Safety

Lord Freud Excerpts

Thursday 11th November 2010 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, the Government attach great importance to the ongoing robust, effective and efficient regulation of the nuclear energy sector in the UK and expect to make a full announcement on the future of nuclear regulation very shortly.

[Lord Jenkin of Roding]

I thank my noble friend. He may find himself slightly surprised to be answering questions about nuclear safety, but is he aware that this legislative reform order is essential now if the inspectorate is to meet all the challenges with which it is faced? Is he also aware that this has been going on for months and months and that the order has the full support of the whole industry, the unions and the inspectorate? Forgive my impatience, but how much longer are we going to have to wait?

[Lord Freud]

My Lords, as I said, we are hopeful of making a full announcement in the very near future. The two options under consideration for reform of nuclear regulation are, first, for a discrete agency within the Health and Safety Executive, which could be achieved rather rapidly without legislation, or, secondly, for a stand-alone statutory corporation, which could be delivered on a slower timescale either through the drawing up of a legislative reform order or through primary legislation. Both legislative routes offer potential advantages and disadvantages. As I said, I hope to be in a position to announce our decision very shortly.

[Baroness Whitaker]

My Lords, can the Minister assure the House that the independence and expertise of the Nuclear Installations Inspectorate—I declare a long-ago interest as a former planner there—will be maintained under any new arrangements, since this is surely what has kept our nuclear industry safe over the years since that inspectorate joined the Health and Safety Executive?

[Lord Freud]

I thank the noble Baroness for that question. Yes, it is absolutely at the centre of any decision going forward that we keep an effective safety regime—a regime that has indeed been congratulated on being a world leader. We would absolutely aim to keep that objective front and centre.

[Lord Taverne]

My Lords, given the vital importance of this order to the nuclear programme and therefore to the future of environment policy—and, indeed, of energy security—should not effective control over and responsibility for such matters, given the delay that there has already been, be transferred or, in effect, ceded to the Department of Energy and Climate Change?

[Lord Freud]

I thank my noble friend for that question. The inspectorate is kept separate for very good reasons, which are connected to my last answer. If you have one department whose job is to put nuclear resources on the ground, so to speak, it is important that another, independent department is ultimately responsible for making sure that that is done in the safest possible way. That is the rather peculiar reason for my standing here discussing nuclear energy, as my role in this House is to look after nuclear safety in this country.

[The Lord Bishop of Bath and Wells]

My Lords, the county of Somerset is experiencing a considerable reduction in employment at present, but with the proposed nuclear power station being currently planned on site, does the Minister agree that it is imperative for the future of the labour force in Somerset and for encouraging people to find work that these regulations are very quickly and immediately put into practice?

[Lord Freud]

My Lords, I thank the right reverend prelate for that question. What is absolutely imperative is that we get rid of any uncertainty that there may be in the nuclear industry, so that it can go forward at speed to produce the facilities that we need in order to cover the energy position in this country which, as your Lordships know, is pretty tight as we look at the decade ahead.

[Lord Hunt of Chesterton]

My Lords, will the Minister’s plan ensure that it will be easier for retired inspectors to return? I know that some of them are younger than me and I am sure that that is part of the plan. Will he also ensure that these arrangements will ensure that what was called the National Radiological Protection Board, which was a world-famous organisation for ensuring safety around our nuclear power stations, will have its important status restored? The board became part of the Health Protection Agency, which is now being changed, so it is very important that this aspect is also maintained.

[Lord Freud]

My Lords, I thank the noble Lord for that question. The important thing that we need is to have a body that is regarded as totally independent by the industry and that the industry can interact with it. Clearly, if the body is independent in that way, it will make its own decisions on who to recruit, whether they are retired, from abroad or from wherever. What is needed is an efficient capability.

[Lord McKenzie of Luton]

My Lords, a consequential benefit of the proposed change of status of the NII would be that it would be outside the Treasury pay remit, which obviously could potentially help with the recruitment of specialists and progress on the generic design assessment. Will the Minister update us on issues around recruitment for the NII and whether that is still a problem?

[Lord Freud]

My Lords, the nuclear inspectorate has been able successfully to fill some of the gaps that it has had in the past couple of years, so it is now much more strongly staffed. That is not a problem. The issue, looking forward, is whether it will be in a position to recruit people of the calibre that it needs. Whatever form it goes forward in, whether as a discrete agency or as a statutory body, it is essential that the inspectorate is able to make the appropriate recruitment.

[Lord Broers]

My Lords, I ask the Government, through the Minister, to reassure us that they realise the urgency of the situation. There is a limited capacity for making nuclear plants and the suppliers of nuclear plants already have their order books filled. China is currently building four or five new plants. We must get on with this, as it is extremely urgent. We must take safety into account, but please reassure us that the Government realise the urgency of the matter.

[Lord Freud]

My Lords, we realise the urgency. That is why we are going to produce a full statement on the issue very shortly.

Welfare Reform

Lord Freud Excerpts

Thursday 11th November 2010 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, with the leave of the House, I shall repeat a Statement on welfare reform made earlier today in the other place by the Secretary of State, Iain Duncan Smith. The statement is as follows.

“In this House, in October, I set out our resolve to secure a welfare system fit for the 21st century, where work always pays and is seen to pay.

Following consultation, a broad positive consensus has emerged—from Citizens Advice to the Institute for Fiscal Studies, and across the political divide. The White Paper that we are publishing sets out reforms to ensure that people will be consistently and transparently better off for each hour they work and every pound they earn. We will cut through complexity to make it easier for people to access benefits. We will cut costs, reduce error and do better at tackling fraud. The detail is published today and the White Paper is available in the Library. Let me take this opportunity to thank all who have helped build and write these reforms.

Let me remind the House of the problem that we are trying to solve: 5 million people of working age are on out-of-work benefits; 1.4 million people have been on out-of-work benefits for nine of the past 10 years; 2.6 million working-age people are claiming incapacity benefits, of which about 1 million have been claiming for a decade; and almost 2 million children are growing up in workless households—one of the worst rates in Europe.

Some have said recently that it is jobs—not reform—that is important, but in doing so, they miss the point. This is a long-standing problem in this country. We have a group of people who have been left behind, even in periods of high growth. Even as 4 million jobs were created over 63 quarters of consecutive growth, millions of people in Britain remained detached from the labour market. Four and a half million people were on out-of-work benefits even before this recession started. These reforms are about bringing them back in. I want them to be supported and ready to take up the 450,000 vacancies that are currently available in our economy. If we solve this problem, we begin to solve the wider social problems associated with worklessness.

The measures in the White Paper get this process under way. They are the first key strand of our welfare reform. By creating a simpler benefits system, we will make sure that work always pays more than benefits. By reducing complexity, we will reduce the opportunities for fraud and error, which currently cost the taxpayer more than £5 billion a year.

Work is the best route out of poverty. At present, some of the poorest who take modestly-paid jobs can risk losing £9 or more out of every £10 extra they earn. The universal credit puts an end to some of those perverse disincentives that make it so risky for the poorest to move into work. The highest marginal deduction rates for in-work households will fall from 95.8 per cent to 76.2 per cent. That is the absolute maximum, incorporating both tax and the withdrawal of benefits. There will be a single taper rate of about 65 per cent before tax. That means that about 1.3 million households facing the choice to move into work for 10 hours a week will see a virtual elimination of participation tax rates of more than 70 per cent. With single tapers and higher disregards, the system will be simpler and easier, and people will keep far more cash in their pockets when they move into work.

Our guarantee is crystal clear: if you take a job, you will receive more income. Some 2.5 million households will get higher entitlements as a result of the move to universal credit. The new transparency in the system will also produce a substantial increase in the take-up of benefits and tax credits. Taken together, we estimate that these effects will help lift as many as 350,000 children and 500,000 adults out of poverty. That is our analysis of just the static effects of reform. Analysing the dynamic effects is not easy, but we estimate that the reforms could reduce the number of workless households by about 300,000. Let me also provide assurance about the transition. We will financially protect those who move across to the universal credit system. There will be no losers.

A far simpler system that operates on the basis of real-time earnings will also reduce the scope for underpayments and overpayments, which we all know can create anxiety and disruption and can prove very difficult to correct. This simplification and reform will help end that problem. As well as reducing official error, these changes will also make life far more difficult for those who set out to defraud the system—they are a small group, but nevertheless they are there. The system will be simpler, safer, more secure, fairer and more effective.

That will require investment, with £2.1 billion being set aside to fund the implementation of the universal credit over the spending review period. I have been assisted in this work by my right honourable friend the Chancellor, who has agreed to this investment programme. This is not just expenditure but investment, and investing to break the cycle of welfare dependency is a price worth paying. The universal credit will provide a huge boost to the individuals who are stuck in the benefit trap by reducing the risk of taking work and lifting 850,000 out of poverty in the process.

This investment will produce a flow of savings, as a simpler system helps drive out over £1 billion of losses due to fraud, error and overpayments each year. In the wider economy, dynamic labour supply effects will produce net benefits for the country as greater flexibility helps business and fuels growth, particularly in the high street. We are investing £2.1 billion in spending review 2010, and we are seeking a multibillion pound return.

That is how we will make work pay, but that is not enough on its own as we also have to support people as they make their move back to work—the two issues cannot be separated. That is why we are moving ahead with our new work programme, which will provide integrated back-to-work support, and that is why we have already started a three-year programme to reassess 1.5 million people who have been abandoned for years on incapacity benefit—something that the Opposition started before the election for the flow of new claims. We are now trialling that programme in two cities in the UK.

This is our contract: we will make work pay and support you through the work programme to find a job, but in return we expect you to co-operate. That is why we are developing sanctions for those who refuse to play by the rules as well as targeted work activity for those who need to get used to the habits of work. This work activity will be targeted at those who need it most: those who face the most significant challenges engaging with the labour market. Furthermore, evidence from the work capability assessment—36 per cent of people have withdrawn their application before reaching the stage where they are assessed—underlines the effect this could have on those currently working while claiming benefits.

This new contract represents a fair deal for the taxpayer and a fair deal for those who need our help. I commend these reforms and this White Paper to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Lord Freud]

My Lords, I thank the noble Lord, Lord McKenzie, for his gracious speech. I welcome his overview that this transformation is going in the right strategic direction and that he and his party are prepared to make sure that we get the very best out of it. There is much consensus around this issue and, as anyone who has looked at my career over the past few years will recognise, it may be that I almost personalise some elements of that consensus. I do acknowledge, as the Secretary of State has acknowledged, that we are building on elements, but we are making them truly transformational by ensuring that people will be able to understand that it is always worth working in a way that, because of the complexity of the current system, it has been impossible for them to do.

The noble Lord put a series of questions to me and I shall do my best to answer all or virtually all of them. He queried the obligation, as he put it, in the contract to grow employment at the same time. I want to make it clear that two separate things are happening here. In the 16 or 17 years to 2008 we had the longest boom in growth that this country, in common with the rest of the western world, has seen. However, we still ended up with a lot of people trapped on out-of-work benefits. What is key here is to untrap them because during the boom we were sucking in labour from abroad which proved to be much more flexible. Before we worry about anything else, we must unlock the people who are living here so that they can play their part in the workplace. That is what these reforms are about.

On the noble Lord’s question about lone parent conditionality, we will of course maintain the good cause provisions that are agreed. We are very sensitive to the school hours measures and so forth, and they will be taken through. Hardship payments will be available, and the exact levels will have to be determined. He made the point that people need self-confidence and good self-esteem to be able to get back into work. The whole point of the work programme is to put in place a structure where providers are incentivised to get people back into the workplace whatever it takes. My own expectation, for what it is worth, is that one of the things that work providers will spend a lot of time on is rebuilding the self-confidence that people need to get back into work. So I expect that to be happening.

We have talked about mandatory placements. They are not a punishment, but are to be used for those for whom working for four weeks will be transformational in how they interrelate with work and in getting used to the basic disciplines of work. The placements will be designed for those people for whom we think they will be of the most value. Clearly there is a secondary issue, which is that making people do something for four weeks when they actually have another job anyway is a useful winnowing tool.

The noble Lord queried the costs and mentioned stories about an extra £2 billion in the next Parliament or at the next spending review. Frankly, we are talking about a very complicated series of movements, and any figures at this stage would be simplistic. The point is that by the next Parliament, the new system will be locked in, so that in the next spending review we will have to take account of what that system is, along with its costs.

I am not sure whether we will be running ahead with the “better off in work” credit because there is so much to do in bringing forward the universal credit. We need to concentrate on the big picture rather than amelioration of bits and pieces of the existing system. The plan is to bring in the universal credit from October 2013 and then start to move as soon as we possibly can the people for whom those incentive effects will work the best. They will be the earliest people to move across.

I can assure the noble Lord that the disability living allowance is out of the universal credit because we accept the reason for the allowance, which is to provide for all people with disabilities who need help with the costs involved in their support, whether they are in work or out of work. Those costs do not change in line with levels of wealth. They represent a basic strapline of expenditure according to an individual’s disability, so we have decided to leave DLA out. On council tax benefit or rebate, depending on what we call it, we are looking to devolve this so that local authorities can start to shape where it goes. We are also determined to make sure that it works with the incentive structure of our taper on the universal credit. This will ensure that we do not have something working against that set of incentives.

I turn to housing benefit, which is effectively one element of the universal credit. We have some work to do on exactly how it will go in and at what rate, but in practice the universal credit is a basic credit with disability add-ons, child add-ons, housing add-ons and so forth. We aim to see the portfolio of an individual’s universal credit build up depending on who they are. On the question of direct payments to RSLs, we will make sure that the risks to RSLs in terms of getting payments are not increased. Their anxiety is that their ability to finance will be undermined, but we are determined to ensure that, whatever we do with this, it does not undermine that ability. We are looking at quite a few options where we can achieve our aim without necessarily having direct payments.

Is child benefit included? No, it is not. As to the noble Lord’s concern about wallet and purse, which would apply also to the universal credit—he did not ask the question but I am happy to answer a question he did not ask but should have—we want to ensure that the credit gets paid to one member of the household, although we will explore ways of dividing it. One hundred per cent may well go to the purse or to the wallet, but we need to consider the middle and whether we should make special arrangements for those people who would like it there.

The noble Lord asked me to take more time. This is a big project and we are doing it at the speed we can. Nevertheless, it will take a long time. We will have the system ready to roll in October 2013 and people will migrate steadily on to it; we will not throw everyone in at the same time. Up to half of the people involved—particularly those who are most incentivised by being in the system—will be in the system by April/May 2015, and the remainder in the next two years. It is a longish process.

I welcome the noble Lord’s closing words—that this will go beyond a second Parliament—but one never knows what will happen in an election. I welcome the fact that the party opposite has indicated that it will be supportive and co-operative because you never know who will be in charge in 2016.

[Lord German]

I congratulate the Minister on the Statement, particularly on him and his team securing £2.1 billion of expenditure to overhaul a system that has had many epithets, including “complex”, “cumbersome” and “inefficient”. I am sure that if we wrote a dictionary of the problems of the current system, we would see the need for making progress towards change.

I am keen to explore the key area of the Statement—that 850,000 people in our land will be lifted out of poverty as a result of these measures. That would be a tremendous achievement for the Government, one which we have not seen in the past. Can the Minister explain how that figure is arrived at and the Government’s direction of travel? It is an aim worth achieving in itself, although it is not the only ambition they have.

Given that there will be a long period of transition, how will the existing benefit structure begin to look to the new benefit structure? Clearly you do not want to continue the old system and change rapidly; you will need to ensure that the sense of direction is towards the new structure. I am sure the House will wish the Government every good speed in doing this, but “crawling” is not the epithet that I would use at the moment.

[Lord Freud]

I thank my noble friend Lord German for raising the issue of the impact on poverty. I have a much shorter word on record: it is not “complex”, “cumbersome” or “inefficient”; I call it a mess.

How will this work? In effect, by having more generous tapers and disregards we are putting money into the pockets of people doing small amounts of work. So there is the direct economic impact of that money going in. There will be a second order impact, which will be twice as large because we will simplify the system and have only one form. This will encourage a much higher take-up rate and, in practice, will almost eliminate the scourge of in-work poverty. So that is where the figure of 850,000 comes from.

There will also be the dynamic or incentive effect of always knowing that it is worth working, and being incentivised to work will reduce the number of workless households by about 300,000. We have not put that poverty impact in the Statement; it is in addition to it. Some households will be pulled above the artificial 60 per cent median line, and we expect the poverty impact to be even greater than the 850,000 we have referred to. These are big figures. I remind the House that, on conventional analysis, the reduction in child poverty during the 13 years of the previous Government was about 600,000 children, so we are looking at making a big relative effect in one go.

[Lord Clinton-Davis]

I wish I could share the Minister’s optimism. I believe that immense difficulties will arise in practice.

I wish to ask about handicapped people. Are any changes envisaged in this approach in regard to those claiming to be handicapped? Will they have a right of appeal if they are turned down—after all, experts can be wrong—and will legal aid be available in the vast majority of cases? If it is denied, that will not be fair—and, after all, fairness goes to the heart of what we are talking about.

[Lord Freud]

I thank the noble Lord, Lord Clinton-Davis, for his question. I hope I am not being too optimistic. On the handicapped issue, there are a few concepts buried in the question and I shall try to disentangle them.

First, how does the universal credit look to a disabled person? In the present system we have a conflation between disability and inactivity in the labour market. It is one or the other; you can do a little work, but not much. The beauty of the universal credit is that people on disability benefit will be on the same taper as others, with generous disregards, so that they are not in the desperate position of being inactive on disability benefit or working. We should remember that 40 per cent of people with disabilities are in the workforce—they want to be in the workforce—and that some of the most heavily disabled people want to work. We want to build up a system to help them to do so.

The second element of the noble Lord’s question deals with the work capability assessment process that we are now trialling. There will be an independent and elaborate tribunal process through which people can go. They can bring in legal support if they want but, in reality, most people do not need it because it has been accepted as a relatively balanced process, and robust systems will be in place to make sure that people do not get put into the wrong category. However, putting the money aside for one minute—clearly one likes to have more money than less and to be on a higher rather than a lower benefit—the reform will unlock the inactivity that we are in effect forcing on too many disabled people.

[Lord Bilimoria]

My Lords, I served on the New Deal taskforce for many years and then on the National Employment Panel for seven years. I am delighted and heartened by many of the initiatives in the Government’s programme for welfare-to-work reform, in particular tackling the benefits trap.

We used to talk about the Australian experience. I spoke to John Howard after he stepped down as Prime Minister and asked him about Australia’s welfare-to-work experience, which we used to look to as a great success. He said that he did not want to remove the safety net but to get people back to work. One way in which his Government had sought to do that was a programme whereby people were made to do some community service. He thought that it would be a very unpopular move; it turned out to be very popular, because people who worked and paid taxes did not like to see people, quite a few of whom could have worked, not working. As a result, the Australian Government got public support for it. Have the Government looked at the Australian experience? Have they learnt from it? Do they think that it was a good and effective scheme, and will their scheme be as effective?

[Lord Freud]

My Lords, I thank the noble Lord, Lord Bilimoria, for that question. We have spent a lot of time looking at the lessons from abroad. When I was doing an independent report three and a half years or so ago, Australia was one of the places that I looked at very closely. I had someone who had been working there to inform me about what was happening. Australia and Holland are two places from which we learn a lot of lessons. There is a debate about whether action should be mandatory or voluntary. Voluntary action works if people have the self-confidence to say, “Yes, I want to try something”, but when you have been out of work for a long time, one of the first things that goes is your self-confidence. That is why mandatory action is not cruel. You need to pick people up and make them do things, because they do not have the self-confidence otherwise. That is one of the main lessons to be learnt from the Australian experience.

[Lord Mawhinney]

My Lords, perhaps I may say how many of us appreciate the fact that, in trying to unlock lives and aspirations, the Minister is focusing on allowing people to keep more of what they earn and trying to build self-confidence. There may be two other locks that he needs to unpick. The longer someone has not been in employment, the more inadequate or perhaps absent altogether will be their education and training. It would be my guess that those locks will need to be unpicked for very many people. Does he share that view? If so, who will have responsibility for addressing proven lack of education and training, and who will pay for it?

[Lord Freud]

My Lords, I thank the noble Lord for that question. I not only share his concern but am very firmly on the record as being very concerned about the division between the Work First strategies that we have been adopting in this country and skills and training. One of the mainstream drivers of the work programme philosophy is an attempt to pull training and employment strategies together. It does that partly by price differentiation, so as people become tougher to put into work, the price goes up. We need to find the right mechanisms to make sure that we price up. It does it also by ensuring that the payments system in the work programme is based on sustainment in work, which can be for one, two or three years. You do not sustain someone in work for a long time unless you pull in the whole training and education element. That kind of change should be going through.

[Lord Christopher]

My Lords—

[Lord Young of Norwood Green]

My Lords, I, too, welcome the direction of travel of the Government. If there is a doubt, it is about whether, after the comprehensive spending review, their growth strategy is coherent. The Statement referred to 450,000 vacancies, but that is before we have seen the impact of the comprehensive spending review. The Minister has just mentioned skills. We have concern about the Government’s abolition of the Train to Gain programme and the funded NVQ programme.

I shall focus on two areas on which I would welcome some further explanation. As I think the Minister would readily acknowledge, matching people to jobs will in some cases require an awful lot of support. In the other place, the Secretary of State talked of mentoring, not only to get people into work but to provide support when they are in work. The Minister has spoken of integrated back-to-work support. Who will provide this support and will it be resourced and properly costed?

The Secretary of State denied in the other place that the Access to Work grants had been cut, saying that they had just been refocused on larger employers. However, on other occasions, the Minister has stated that job growth will come from SMEs. That is a contradiction. If the Government want people with disabilities to get back into work, Access to Work grants are an important part of creating employment opportunities.

[Lord Freud]

My Lords, I thank the noble Lord, Lord Young, for that question. We have an integrated strategy. Measures in the CSR will ensure that mentoring takes place; there is also the new enterprise allowance and so on. We are building those packages and will announce details in due course. Our main change to Access to Work is to make sure that when someone goes for a job they have the funding required. No one will take someone if they do not know whether they will receive Access to Work. That is the main way in which we are refocusing Access to Work, which we think is a good programme.

[Baroness Thomas of Winchester]

My Lords, I, too, warmly welcome my noble friend’s repeated Statement today. I have one very simple, fundamental question to which I do not know the answer. How much discretion will decision-makers at Jobcentre Plus have about the sorts of work that jobseekers will be compelled to take? We hear that the conditionality rules will be tougher than those set by the previous Government. Let us suppose that a graduate or a highly qualified person can find only a cleaning job. Will they be compelled to take it and does the decision-maker have any discretion about that?

[Lord Freud]

My Lords, I thank the noble Baroness, Lady Thomas, who has been incredibly involved and interested in the development of the universal credit. Jobcentre Plus is structured in such a way that there is a very light touch in the early months which becomes gradually firmer and starts being a heavy hand on the shoulder after six months. There is a reality period. Most people look after themselves and find a job, but some need to have the reality of their position in the marketplace brought home to them, so that they match what work they can realistically expect to do with what is out there. You are much better off being in work and looking for a better job from an in-work position than from an ever longer period of inactivity.

[Baroness Afshar]

My Lords—

--- Later in debate ---

[Baroness Afshar]

Thank you very much. I am very grateful that you allowed me in. I have two related points. First, the welfare legislation that did not get final approval put the welfare of children at its centre. It was the first thing that was stated. Can we hope that the current measures will begin with that statement?

Secondly, there are minority women, particularly Muslim women, who would find it very hard to front up and be consulted by a man who told them what to do. We need to have much more appropriate arrangements, because jobcentres have targets to meet. A specific woman may not want a job that staff think is appropriate. We need leeway and I wonder whether there will be room.

[Lord Freud]

I thank the noble Baroness, Lady Afshar. Children are at the heart of this. In our view, intergenerational poverty and joblessness are the basic reasons for the much too great child poverty that we have. This measure is designed with children in mind—right at the heart.

I take the noble Baroness’s point about cultural differences. One of the things I expect to see in the work programme—I know it is not in Jobcentre Plus—is quite sophisticated addressing of particular cultures. It is designed to force individualisation. In the work programme at least we will see start the kind of responses the noble Baroness is looking for.

[Lord Christopher]

My Lords—

[Lord Christopher]

I am not giving away after the 19th minute. I have tried four times.

Following the question asked by the noble Lord, Lord Mawhinney, will the Government produce proposals to deal with the situation that is bound to arise where the number of unemployed far outstrips the number of jobs available, which is particularly the case in the north? Will the Minister confirm that the Government have carefully considered ILO Convention No. 29, which Governments of this country have supported for 80 years? Is what the Government doing in accordance with that?

[Lord Freud]

My Lords, what we are announcing today is a structure that will encourage people to take the jobs that there are. A snapshot figure of 450,000 vacancies in Jobcentre Plus does not show the whole picture. There were 1 million vacancies in jobcentres in the past three months. In devising this strategy we will have looked at all conventions to make sure that we comply with them.

[Lord Christopher]

What about the second question?

Disabled People’s Right to Control (Pilot Scheme) (England) Regulations 2010

Lord Freud Excerpts

Monday 8th November 2010 Grand Committee

Moved By

[Lord Freud]

That the Grand Committee do report to the House that it has considered the Disabled People’s Right to Control (Pilot Scheme) (England) Regulations 2010.

Relevant document: 3rd 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. I am very pleased to take part in today’s debate and commend these regulations on right to control. This is a groundbreaking advance, which for the first time gives disabled people a legal entitlement to choice and control over the public services they receive.

When noble Lords debated the Welfare Reform Bill in this House last October, I noted just how important choice and control are to all our lives. There is an emerging thesis that happiness, quality of life and fulfilment depend on our ability to contribute on our own terms and be valued for that contribution. Like anyone else, disabled people need to be empowered to be in control of their own lives. They should have the same opportunity to be involved in a society that recognises them as individuals who contribute, rather than as people defined by disability. So I am proud that, with right to control, we have developed a policy that commands such broad support.

I am happy to congratulate the noble Lord, Lord McKenzie, for the work that he and his colleagues have done to bring the policy to this stage. I also pay tribute to the many people who have been involved in laying the groundwork for these regulations. A great number of organisations and individuals have expended a huge amount of time and energy in shaping this legislation. However, it would be remiss of me not to reserve a particular mention for the noble Baroness, Lady Campbell of Surbiton, who has been such a potent advocate for right to control. Her work, and that of the advisory group she chairs, has been critical in shaping this policy and advising the Office for Disability Issues. Even then, we could not have come so far without the support and co-operation of the many disabled people and user groups who have been crucial in ensuring that we get this right. This sum of knowledge and expertise is reflected in the clear insights and attention to detail that we see in the regulations under debate.

Right to control represents an important landmark but it is one stage in a longer journey. The coalition Government have a broad vision to decentralise, empower individuals and cut bureaucracy. Right to control fits well with our plans to allow local authorities, communities and individuals to manage their own destinies with less interference from the centre. By shifting the focus from what people need—or what somebody thinks they need—to what they want, we are working towards, first, services that meet the aspirations of disabled people, as well as their needs; secondly, services that are planned and designed around the disabled person; and, thirdly, a diversity of services that help disabled people choose the right package for them. In short, these are personalised and responsive services.

The right to a personal budget and, ultimately, the right to take the cash and buy services directly is the mechanism for empowering disabled people. Too many people are currently offered services that are designed for the convenience of the provider, not the customer. Too many people still find that their own complex needs are not fully understood and catered for, despite the best efforts of the local social care department. Right to control will put the people who are the experts in their own care firmly in the driving seat when it comes to putting together a package of support. I fully recognise that some disabled people will still need support and advocacy to discover what is available and what they can aspire to. But I want to be clear that right to control is designed for all disabled adults and our trailblazers will deliver the guidance and support needed to ensure that everyone can exercise that right.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for his full explanation of these regulations and for his kind words. We certainly welcome the introduction of the right-to-control trailblazers, which, as all noble Lords who have spoken identified, flow from the Welfare Reform Act 2009. The Minister referred to them as groundbreaking; the noble Baroness, Lady Campbell, referred to them as transformational and overturning a culture of dependency. I very much agree with that. The noble Baroness was the driving force behind the development of the right to control. She described the legislative process as one of co-production. It would seem that this approach has very much continued in the development of the regulations before us. The right to control is predicated on the principle that disabled people are the experts in their own lives: and that their being passive recipients of whatever support is deemed appropriate, and how that support is delivered, is no longer acceptable. I agree.

I have one or two specific questions that perhaps the Minister can help me with. The Independent Living Fund is not one of the qualifying services, although it is one of the six funded services that are to be included in the right-to-control trailblazer areas. Notwithstanding that further applications are to be considered during the current financial year, my understanding is that the right to control can still apply to existing recipients. I should be grateful if the Minister could confirm that. Can he also explain the position for future years? What are the planned allocations over the CSR period? If he cannot tell us today, he might let us know when that information will be available.

Work Choice is one of the qualifying services. According to the DWP website, contracts have now been awarded for the delivery of that programme. Can the Minister say a little about how those contractual arrangements sit alongside the right to control? For example, will the duty of the responsible authority to provide information to the beneficiary under Regulation 7 remain with the Secretary of State or, by agreement, be passed to the third-party provider? In second arrangements with providers, what estimate has been made of the likely numbers of people who will opt for arrangements other than those available under these contracts? More generally, can the Minister say whether any of the six funding streams are likely to be inculcated in whole or in part into the universal credit when introduced, or if any of the relevant services within the meaning of Section 39 of the Welfare Reform Act would be so included? I understand that we may get more detailed views on that later in the week.

It is understood that the Work Choice programme, when introduced, will focus very much on an individualised approach to supporting people towards and into work. That is something that we should support. Can the Minister say something about the relationship between that programme and the right to control? As the noble Baroness, Lady Thomas, said, concern was expressed during our deliberations on the Welfare Reform Bill that expressly excluding adult community care services from the legislation would substantially diminish benefits from the right-to-control approach. The reason for the exclusion was that similar provisions exist under other legislation. We are told that the Department of Health will issue directions to local authorities to ensure that people assessed for adult community care services living in the pilot areas will have the equivalent facilities of the right to control. Given that the regulations have now been laid and that the pilots are due to commence shortly, have those directions now been finalised?

Supporting People is a vital, non-statutory programme that helps about a million of our most vulnerable citizens each year. It is a sign of the times that it is considered a reasonably protected budget, although it suffers a 12 per cent real-time reduction over the CSR period. It is a qualifying service for the purposes of these regulations, to the extent that it helps disabled people to live independently. Funding from the centre is no longer ring-fenced and there is great concern that local authorities, under extreme financial pressure because of budget cuts, will shift resources to other programmes. To the extent to which that happens, vulnerable people who are eligible to benefit from these and other regulations will suffer. Will the Minister say how this issue is to be monitored?

It is comforting that the DFG regime has been brought within the right-to-control pilots. Again, the budget will be under extreme pressure because local authorities typically top up their central capital allocation. Obviously, their scope for doing so is diminished. Will the Minister deal with one point? It is focused on the changes to buildings, but it should cover the provision of equipment as well. Do the processes envisaged here facilitate the recycling of equipment? I recall instances in the past such as when I was on a local authority and someone had a stairlift fitted. Sadly, within two weeks, they died, but it was pretty much impossible to get the stairlift taken out of that property and installed in another property with an equivalent need. I am not sure that I have my mind around all the processes envisaged here, so I should like to check whether that is facilitated, or not precluded. Obviously, that would damage the interests of disabled people.

Finally, could the Minister remind us of the basis on which the pilot areas were chosen?

In conclusion, these regulations are a hugely important step forward and a tribute to a lot of work that has been done by many people, particularly the noble Baroness, Lady Campbell. They give us a chance to test the proposals in practice and open up opportunities for disabled people to transform the quality of their lives. We give these regulations our full support.

[Lord Freud]

My Lords, I thank everyone who has spoken in this debate for their unanimous supportive approach. We are looking at a watershed moment—despite the level of consensus in this Committee, or maybe even because of it—in the way that right to control will enable disabled adults to have a real say in how services are provided and choose how to purchase those services. As the noble Baroness, Lady Campbell—who will, I think, be watching—said, these pilots need to be implemented well. While I could not possibly comment on her claim that she is a control freak, I know she raised the issue that some people who may not be quite as enthusiastic about taking total control will still be part of the pilot. Full support for them will be built into the pilot and will be a vital aspect of it.

I will now deal in no particular order with the questions that were raised. The noble Baroness, Lady Thomas, asked about the number of assessments required. We are working with all the local authorities involved to support them in undertaking just a single assessment, and have a field support team working with the different local authorities to share the approach. The noble Baroness asked why the regulations do not refer to accessible formats for the provision of information. These do not need to be specified in the regulations because there is a general duty under the Equality Act. The noble Baroness asked how community care will work. It is aligned with right to control. These regulations work alongside the legislative framework for community care. Indeed, the data-sharing regulations extend to community care.

The noble Baroness asked about the support provided to user-led organisations during the pilots. Trailblazers work with the local organisations that supply the support and advocacy. The representatives are members of local project boards, and the Government will provide support to trailblazers, which can include support for user-led organisations. The noble Baroness raised the issue of general support. The concept of right to control involves assembling the money that is already there and making it accessible in a right-to-control way. For the purpose of the pilots, we are putting resources in because there is clearly extra cost for the communities. From memory, the figure that we are adding to that package is £7.5 million, which will be a mixture of cash and practical support.

European Social Fund (EUC Report)

Lord Freud Excerpts

Wednesday 3rd November 2010 Lords Chamber

[Lord Freud]

My Lords, I thank the noble Baroness, Lady Howarth, for leading this evening’s debate on the European Social Fund. I also thank the other noble Lords who have contributed to this debate. The report and this debate are well timed. They come at the midpoint of the current 2007-13 programme, just at the time when negotiations are about to begin on the future of the EU budget and on the structural funds after the end of this particular programme.

Our approach to the European Social Fund is shaped by the coalition Government’s programme for welfare reform. We are transforming the welfare system—as the noble Lord, Lord Knight, mentioned just now—to encourage responsibility, to make work pay and to end the cycle of benefit dependency. The work programme within that ambition is a central pillar of our approach, aiming to move people back into the labour market where it will replace a series of programmes that have been built in the past. One of the elements of the work programme that is novel is its emphasis on sustaining people in the world of work for a much longer period than has been the practice in the past. It pulls in a unified structure that forces providers in practice to treat people as individuals and also gives providers the freedom to tailor the right support for the specific needs of those individuals.

So the question—and it is the question that the noble Lord, Lord Knight, put with his customary elegance—is what role the European Social Fund can play in that context. It is clear that competence for employment and skills policies rests at the national level, as does the primary responsibility for funding. The role of the ESF—as all noble Lords in this debate have pointed out—is to add value to the core offer that the member state provides. This poses what we will call the “Lord Knight challenge”. The ESF must fit the integrated approach that we are developing. It must not fund alternative programmes just for the sake of additionality.

The methodology with which we are introducing the work programme is through a framework for employment-related service. In practice, this is a pretty effective structure for integrating the European Social Fund with our national employment provision, while ensuring that the ESF remains additional. Let me spend one minute on the attraction of, and the opportunities provided by, the framework. Once you have a framework set up, and providers set up within the framework, it is permissible for any government or local authority organisation to use that same framework. It does not take a lot of imagination to see that one can start to channel different sets of funding to provide an holistic approach for particular individuals.

I pick up on the point that the noble Baroness, Lady Howarth, made so eloquently with her concern about cherry picking and that the most disadvantaged will not be looked after properly. One of the key tenets of the work programme is that we will have price differentiation to encourage providers who will see just as much profitability, ideally, out of helping the harder to help as the easier to help. That is the concept behind it. On top of that, when you have a framework construct, you can see other funding coming into the same place to help the even harder to help. It is potentially a most powerful tool for getting rid of silos and putting in money and extra resources to help the hardest to help. We will write to the noble Baroness with further details. Actually, we will write to the noble Baroness, Lady Young, with further details of the department’s next procurement round in due course.

Several noble Lords have referred to the role of the voluntary sector in the European Social Fund. We recognise that localised, specialised voluntary services are often well placed to address the complex barriers that prevent disadvantaged people returning to work. Again, the framework will allow smaller voluntary organisations to participate in consortia, to form partnerships or to act as subcontractors to deliver the work that the core work programme and the ESF contracts. This deals with the concern that my noble friend Lord Cotter raised about the position of voluntary groups.

Several noble Lords asked how the effectiveness of the social fund is measured. We agree with what several noble Lords have said: that there is substantial room for improvement, especially at the EU level. We will judge the success of the ESF by job outcomes. After all, the ESF is primarily a labour market and skills fund. Our objective is to help more people back to work and with the right skills. We make no apology for measuring performance primarily on hard outcomes, particularly hard outcomes around jobs. In this way we are closer to the noble Lord, Lord Knight, of February than the noble Lord, Lord Knight, of November. Having said that, we recognise that people will achieve soft outcomes on their journey to employment. I agree entirely with the noble Baroness, Lady Young, when she says that she has problems with this terminology of soft and hard. We are using it this evening, so let us stick with it.

The work programme that the ESF contracts will encourage sustainable employment. That is the Government’s stated objective. In practice, it will not be possible for providers to achieve that hard outcome unless they build the intermediate soft outcomes, so soft outcomes should not be an end in themselves. We need to see through the process where people go through the soft outcomes into the hard, measurable outcome. One of the keys in developing the work programme is to make sure that there is a financial structure that allows the provider to see the whole process through to the end, rather than chopping it up and looking at intermediate steps. It is much easier to lead the responsibility through the whole programme.

As the noble Lord, Lord Knight, of February would have said—or maybe even did say—the problem is that, unless one has an extraordinarily effective measurement tool, it is very easy to fall from soft outcomes into spraying money around ineffectively. We have just launched a longitudinal study to capture the status of leavers 18 months after their ESF provision to measure the sustained jobbed outcomes. We are also developing a quantitative impact analysis of ESF.

Several noble Lords referred to the administrative burdens on providers of the programme. We will continue to use the co-financing system to relieve providers of the burden of finding match funding and we will work with the Commission and other member states to seek to simplify EU rules. However, we must also ensure that there is rigorous financial management and control across all member states and that there is value for money for the taxpayer. We also believe that there should be greater flexibility within the overall focus of the European Social Fund on employment and skills. The fund needs to be more responsive to new policy developments, changes in the economy and local needs.

Concerning the future of the European Social Fund—I think that this issue was raised by all noble Lords who took part in the debate—I will respond first to points raised about the budget and then to the policy focus. The Commission published its communication on the EU budget review on 19 October. The Government welcome the Commission’s focus on the need for reform of the budget to support the EU’s priorities, in particular economic growth. However, the review does not go anywhere near far enough on recognising the economic and fiscal context. We need to see a much stronger focus on prioritisation and where savings can be made. The EU budget cannot be immune from the huge budgetary challenges facing EU member states. This will have implications for the structural and cohesion funds, including the European Social Fund. The funds should focus on stimulating economic development in member states where income per capita is far below the EU average, where there are clear economies of scale with respect to financial and institutional capacity, and where EU spending can significantly add value. Receipts in richer regions, particularly in wealthier member states, should fall significantly in the next financial period after 2013. The share of receipts going to the poorer countries should continue to rise, albeit within a smaller overall structural and cohesion fund budget envelope.

The committee’s report criticised the previous Government for seeking to withdraw ESF funding from member states. Under the coalition Government’s approach, a reduced ESF budget would continue to fund some activities in the UK in the next financial perspective. However, in the longer run we aim to phase out structural funds from the richest member states entirely, and end the recycling of funds between member states that have the capacity and ability to finance their own development.

A smaller budget will make decisions on the targeting of ESF even more important. The Government believe that in the next financial perspective member states should target ESF on the most disadvantaged groups, focusing on employment and skills. For us, this will mean ensuring that the ESF continues to complement the work programme. We will expect the European Social Fund to be consistent and coherent with our policies to help individuals make the most of their lives and to get Britain working again.

The noble Baroness, Lady Howarth, and my noble friend Lord Liddle referred to the strategic alignment of funds. We want better strategic alignment of the ESF with Europe 2020 and national policies, and especially so on challenges such as climate change. My noble friend Lord Cotter and the noble Lord, Lord Knight, pressed me on the timing of the work programme. I will not use the word “delay”, as they did. I assure them both that the work programme is on track to be delivered in the first half of next year, starting in the spring. They will be delighted to know that the Treasury, the DWP and the Prime Minister all vigorously support this programme.

The noble Lord, Lord Knight, made a pointed query about additionality and the working neighbourhoods fund. I assure him that we will not use the European Social Fund to backfill that fund. As he will understand, we are ending the piecemeal approach to employment programmes and integrating in an entirely different way. As regards his point on regional priorities, our focus is on local communities and individuals, not on regions, which we regard as artificial and bureaucratic. In our White Paper on local growth, published last week, the noble Lord may have noted our view that labour markets do not exist in the main at regional level, with the exception of London. Therefore, we will want to see the ESF responding to local needs, not to regional priorities.

I close by thanking noble Lords once again for a series of most constructive and thoughtful comments, including some pretty nifty and interesting ones from the noble Lord, Lord Knight, which I enjoyed answering. This evening’s debate has reinforced how complex some of the EU rules and principles can be. I can certainly think of better things to do than debate concepts such as EU additionality at this time of the evening—or at any time of the day for that matter. However, we need to make sure that the European Social Fund is integrated with our welfare reforms and is made to work for the most vulnerable. This may raise the question of whether the European Social Fund can be additional if it is also integrated, but then I suspect that additionality is in the eye of the beholder.

Welfare Reform

Lord Freud Excerpts

Monday 11th October 2010 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, with the leave of the House, I shall repeat a Statement on welfare reform made earlier today in the other place by the Secretary of State, Iain Duncan Smith. The Statement is as follows:

“Today’s Statement is in three parts: first, the launch today of a new approach for those on incapacity benefit under the work capability assessment; secondly, more detail on the new work programme, which I will set out; and, thirdly, our plans for wider benefit reform as we look ahead to a White Paper and welfare reform Bill.

The economic backdrop is severe. We have the largest deficit in the G20—at £155 billion, the largest in peacetime history. With net interest of £120 million a day, that is £43 billion in 2010-11. Under the previous Government’s deficit reduction plan, which the Opposition now seem not to favour, Labour’s plans had annual debt interest spending rising in only five years to almost £70 billion.

Reform is urgent. We are at a critical point, with 5 million people on out-of-work benefits, 2 million working-age people claiming incapacity benefit, of which 900,000 have been claiming for an entire decade, and a system that has left Britain with the highest rate of jobless households in Europe. These statistics reveal the human cost of leaving our welfare system unreformed.

With this comes an ever increasing financial cost. The working-age welfare budget rose by 40 per cent in real terms from £63 billion in 1996-97 to £87 billion in 2009-10. A staggering £133 billion was spent on incapacity benefits in the past 10 years, with benefit spending forecast to be over £152 billion in 2010-11—about 10 per cent of GDP. Today, we spend £1 in three on British welfare, yet youth unemployment is higher, inequality is greater and there are actually 800,000 more working-age adults in poverty than in 1998-99.

It is in this context that we also announced reform of child benefit. I do not think that it is right to tax the poor to fund child benefits for those above the higher-rate tax threshold. We can save £1 billion, protect 85 per cent of families and secure fairness as we support people into work. This is tough, but it is fair. At the same time, we announced that we will cap benefits for workless households to average earnings, which are around £26,000. This cap will be net of income tax and national insurance, so in practice equates to gross earnings of £35,000 a year. Equally, we will exempt the disabled and those on working tax credit, so we encourage work incentives. This is fair and we will announce the detail in the spending review.

Today, we launch two trials for those on the old-style incapacity benefits under the work capability assessment. My right honourable friend the Minister of State for Employment is travelling to Aberdeen and Burnley today to see those trials get under way. This is about giving many thousands of people the opportunity to move from the margins of society into mainstream employment. This new assessment will put an end to a system that has simply abandoned people to a life of dependency and exclusion. Under this system, we will assess people on the basis of what they can do, not what they cannot do, and thereby support people to meet their aspirations for work. We are determined to get this right, which is why not only will we learn from these trials, but we have also set up an independent experts group to scrutinise the assessment.

We are committed to supporting everyone going through the assessment. For those deemed unable to work, we will ensure that they continue to receive the support that they need and, for those deemed able to work, we will ensure that they are fully supported to do so. People who are found fit for work will move directly to the work programme, an integrated package of support that will provide personalised help based on individual needs, not the benefit that they are on. Using the best of the private and voluntary sectors, this will help people to get into work as quickly as possible. It will operate a true payment-by-results system that pays providers not simply for getting someone into work but, more important, for keeping them there. We have had 790 expressions of interest from providers to join the programme and in December we will invite bids for contracts ready for national rollout next year.

The work capability assessment and the work programme are critical to helping people into work, but alone they are not sufficient. Underpinning this support must be a benefits system that incentivises work. We have to make work pay. That is why the coalition Government aim to bring forward a White Paper shortly and a welfare reform Bill in the new year.

The introduction of a universal credit will restore fairness and simplicity to a complex, outdated and wildly expensive benefits system. As we get the benefits system working, we can get Britain working—the best way to get the deficit down, drive the recovery and get the economy moving. Welfare reform is critical; it is also the right thing to do—to move people into work and create a pathway out of poverty for the 5 million people on out-of-work benefits. This is a cause that should unite this House.

The new leader of the Labour Party has said that he will not be in opposition for opposition’s sake, so let him and his shadow Cabinet colleagues do the right thing and support us in delivering a welfare system finally fit for the 21st century. I commend these welfare reforms to the House”.

That concludes the Statement.

--- Later in debate ---

[Lord Freud]

I thank the noble Lord, Lord Knight, for some general supportive words, although he also asked some specific difficult questions, which I shall endeavour to answer as they came up. He started off by saying that he welcomed the general thrust and claimed that it builds on existing processes. To be fair, we have tried very hard to build on the present system. There is an argument for being radical, but just ripping everything up and starting again can be dangerous.

Let me start with the noble Lord’s question about the work capability assessment process for people on IB. We are indeed taking steps to increase capacity with the provider, Atos. One control of the process, by which we do it over three years, is exactly to take account of the capacity available.

On the noble Lord’s point about unemployment in general, one of the most shocking stories that I read last week was not in the Guardian but in the Financial Times, which stated on the front page that the total number of jobs that had so far been lost in this recession by people living in this country was roughly 600,000. However, people from outside this country had taken 200,000 more jobs. That tells you something about how we have locked people up in inactive benefits.

The whole point of what we are trying to do with the universal credit and the work programme is to take people out of this trap—being defined as inactive and unable to seek work—certainly on a flexible basis. Once we have a universal credit in place, people will be able to take any amount of work gradually and we can have a great deal more flexibility as we steadily get rid of the 16-hour rule and the 30-hour rule. It is not just about the unemployment rate; it is very much about the nature of the employment that is available. The work programme is designed to take people and unleash their capacity by making them available for the particular jobs that are there.

The noble Lord’s next question was: what will be done differently? He pointed out that Pathways was a disappointment, as indeed it was. It was a disappointment because it was a prescriptive programme based on six work-focused interviews and was underresourced to do very much else. The point about the work programme is that it will allow providers to discover and build on the things that are working. The difference between past programmes and the work programme is that past programmes have looked on outside contractors as a price discovery mechanism, whereas this programme looks to providers to unleash their creativity and the competitive pressure to get the things that work copied and used.

The noble Lord asked whether the £500 benefit cap is fair. Many hard-working families do not achieve a rate of £35,000 gross. It puts things into context for them when people on benefits can get more than that. Therefore, our aim is to cap what people can get. This will come in towards the end of this Parliament and we have a lot of measures, including the cap on housing, to work the process through. So, yes, it is fair.

I was asked whether there is a plan to roll child benefit in with universal credit. At the moment, there is no such plan. Within this spending review, the child benefit change will be introduced in the way described using the tax system as a measure. It is clear that beyond this spending review, once universal credit is in place, there can be decisions to use that, but at the moment there is no such decision.

I was asked about the discussions on child poverty. We have done an immense amount of modelling on the impact of the universal credit. The models change on a regular basis, but the effect of the universal credit at the moment is to take some hundreds of thousands of children out of child poverty. The current model—it may not stay at this rate, so the figure is not rigid—would take 300,000 children out of child poverty and would raise others much nearer the line. It has a most powerful effect on poverty. One of the most attractive things about the universal credit is that it takes a lot of people out of poverty.

I am conscious that I need to give other people time, so I will stop and come back to some of the noble Lord’s other questions.

[Lord German]

I thank the Minister for his Statement. I am particularly interested in the work programme and the way he announced that it will bypass the jobseeker’s allowance. Can he give us an estimate of the prospects for lifting people out of poverty as a result of this new programme? Will a big attempt now be made to ensure that that happens as a fundamental principle? The Minister mentioned expressions of interest from providers. Will they include people from the third sector or people who can deal with people who are further from the job market? There is a fear that those who are closest to the job market are the easiest to deal with and will be dealt with by private contracts.

[Lord Freud]

The core difference between the work programme and past programmes is that we are determined to put price differentiation into it because otherwise, as the noble Lord pointed out, the financial incentive for providers is to concentrate on the easiest people. To neutralise that effect, we need to give providers a higher reward for helping the more difficult people. That also has the effect of encouraging the consortia which are formed to be rather rich in terms of their capability. As the noble Lord pointed out, the third sector has some of the greatest expertise in the most difficult people to help. Once you pay for that, it encourages consortia to form which include them. That price differentiation mechanism is one of the most powerful aspects of the work programme for lifting people out of poverty into jobs.

[Baroness Hollis of Heigham]

My Lords, I very much support the Government’s approach in their 21st Century Welfare paper on making work pay and on the running particularly of benefits alongside low hour working in order to reduce the risk of returning to work. That approach is absolutely right and well done on that point. However, for most people of whom I have had experience the issue is not whether work paid, because people have an irrational attachment to being in work, it is whether you can reduce the risk of returning to work. If the job folds and as a result you have to go back on benefits, which may take three to four weeks to come through, and you are only two tins of baked beans away from not being able to feed your children, you may prefer the security of a low but steady income than the risk of work. I hope that the Government’s approach on that will identify that problem, but it is to be welcomed and very much supported.

I have two key questions, to which my noble friend referred, on child benefit. Perhaps the Minister can help us. One shocking consequence of the proposals is that at the moment, if you are on child benefit, through the passporting of HPP—home protection payment—being a carer of a child until your youngest child is 12 years old gives you credits into the state pension. Women who stay at home to bring up their children—all credit to them—whose husbands earn above £44,000 will lose their child benefit. At the moment, those same mums will simultaneously lose a huge chunk, potentially, of their state pension credits. That is completely and utterly unacceptable. If that is not amended, I am sure that this House may have a view which differs from that of the Minister as at present exposed. It would be good if he could help us on this. To penalise stay-at-home mums twice over with the loss of child benefit and the loss of credits into the state pension is completely unacceptable.

Secondly, I turn to the connection between JSA and HB with the threat that HB will be cut after 12 months on JSA. This assumes that what is stopping people on JSA after 12 months going into work is their unwillingness to work and that, therefore, they need to be sanctioned by an additional sanction of 10 per cent on their HB. On this point, I should declare my interest as chair of Broadland Housing Association. I had the stats done for me by the House of Lords for July. In July in Norfolk, 15,900 people—just under 16,000 people—were on JSA. The number of job vacancies in Norfolk was 3,500. The people who get those vacancies will be those who have been most recently made unemployed because they are the most attractive to the employer. Those of us involved in social housing will have on our books young people, who are sometimes difficult to place in jobs, who will have been on JSA for far more than 12 months by virtue of the job shortages that currently exist. Yet they will face a sanction of 10 per cent on their rent.

As a chair of a housing association, I can either accept that rent arrears will mount or I can evict them. They will become homeless and then they may squat. But if I keep them and their rent arrears go up, I do not have the money to put in the solar panels et cetera to reduce the fuel poverty of elderly people. What choice would the Minister have me make? Should I evict those young people who through no fault of their own cannot get a job where there are 16,000 people unemployed and 3,500 vacancies or deprive elderly people of the opportunity to reduce their fuel poverty? No Government should force socially responsible landlords into having to choose between those two categories. I hope that the Minister today will assure us that that will not be the choice we will have to make.

[Lord Freud]

I thank the noble Baroness, Lady Hollis. Again, I take comfort from her general support for the universal credit. The point I would like to emphasise is that because we have two systems, an out-of-work benefit system and an in-work tax credit system, the risk of moving from one to the other is enormous. One has only to experience doing a job which does not work out, having to fall back into out-of-work benefits with perhaps a delay of three months as the bureaucracy is sorted out and thus not being able to afford the baked beans mentioned by the noble Baroness, to realise that that kind of risk is highly unattractive. We have created a very conservative group of people who should be prepared to take that risk, by which I mean conservative with a small “c”. On child benefit, we have not made a full announcement of what is going to be in the spending review on 20 October, at which point the detail will be revealed, so I am not in a position to answer.

On the second point made by the noble Baroness, noble Lords will be aware that what we are looking at in the numbers is flows. Any work programme tries to balance the disadvantage experienced by people who have been out of the job market for a period and what it takes to get them back into work against those who have only just lost their jobs. Effectively, that is what all programmes try to do. Clearly, we need to ramp up the speed with which we can get people back into work, and this is one measure that is designed to encourage and put pressure on them.

[Baroness Meacher]

My Lords, one of the Government’s aims is to reduce the number of employment support claimants by around half a million. I respect the Minister’s expertise in this area and, indeed, his commitment to produce a more efficient system. However, can he assure the House that he will not introduce, for example, the time-limiting of benefits to six months or a year, as has been mooted, for people with severe and enduring mental health problems and other long-term disabilities? Has he made it clear to the Chancellor of the Exchequer that the cost of long-term hospitalisation of these people if their benefits are removed will be a great deal higher than maintaining them on benefits? Finally, will he delay the introduction of the new medical tests until the evidence makes it abundantly clear that they are fit for purpose for all, including for people with fluctuating and long-term disorders, most particularly of course for those with severe and enduring mental health disorders?

[Lord Freud]

I thank the noble Baroness for those questions. We do not have a target for the transfer of IB claimants into JSA, but we estimate that 23 per cent will move straight over. However, it is an estimate and one point of the trials that have been launched today is to find out what the figure might be. The process by which we move people over from IB to ESA means that a substantial proportion will move on to unconditional support allowance so that they are fully supported. However, we would like to make sure that the work-related activity group within ESA moves through the process so that it does not become another place to park people. We are therefore looking at ways to ensure that those in the work-related activity group move through so that they go into JSA as fast as possible. The worst thing is for people to remain inactive for a week longer than necessary.

[Lord Skelmersdale]

My Lords, my noble friend will not be surprised to learn that I am broadly supportive of the plans he repeated today. However, I wish to ask a specific question about the Atos programme of work capability assessments for those on ESA—in other words, the programme to ascertain which people currently on ESA are suitable to move into work preparation and perhaps into work. My noble friend will have noticed that recently there have been big complaints in the press about the work capability assessment. There was a suggestion in at least one of the papers over the past few days that 40 per cent of people who have been assessed as capable of work or working towards work have successfully appealed. My right honourable friend the Secretary of State said in the Commons that actually around 5 per cent were successful in appeal. None the less, it seems that the assessment needs to be looked at critically. Can my noble friend give me an assurance that it will be?

[Lord Freud]

I thank my noble friend Lord Skelmersdale for his question on the work capability assessment. He will be aware that there has been an internal review of the work capability assessment and that four changes have been made to it. In practice, these changes will come into the work capability assessment next spring. On top of that, in June we employed Professor Malcolm Harrington to review how the work capability assessment worked on an annual basis. He is supported by a scrutiny group, which includes Paul Farmer, the chief executive of Mind, and three others. I mention Paul Farmer in particular because of the importance of mental health and the fluctuating conditions to do with mental health. We are determined to make sure that the work capability assessment does the job it needs to do.

[Baroness Turner of Camden]

My Lords, I welcome the Statement made by the Minister to the effect that we have to make work pay. I agree—but does that mean that the Government will be inclined to bring pressure to bear on low paying employers to ensure that they are prepared to pay a living wage? I do not see why the taxpayer should subsidise employers who are paying extremely low wages.

As to unemployment, I suggest that there may be particular difficulties in certain areas of the country where manufacturing industry used to exist and does not exist any more and there is a decline in suitable work for people. What steps can be taken in such areas to ensure that there is work available for people who can demonstrate a capacity to work but where there are no jobs available because of what has happened to local industry? Where the local industry does not provide jobs, because there are no jobs, people are simply resigned to spending the rest of their lives on benefit.

[Lord Freud]

I thank the noble Baroness for that. She makes the real point that if we do not get the universal credit right we could encourage underpaying employers. We are fully aware of that and are looking into the situation. On her other point about unemployment black spots, it is always a tragedy when an area loses its economic rationale. However, what makes the inevitable adjustment process worse—and perhaps stops it—is a benefit system which hides people away. The shocking story of Merthyr Tydfil is an example. When the steel plant there closed—I do not have the exact figures—there were approximately 4,000 people working in it; two years later there were 3,800 people on incapacity benefit. That meant that no potential entrepreneur or employer would go to that part of the world thinking there was labour there to be used because the system had locked that labour away. If we can get people back on active benefits, we will at least encourage the necessary, and sometimes painful, adjustment process to happen at the fastest speed possible.

[Lord Kirkwood of Kirkhope]

My Lords, perhaps I may return to the important question raised by the noble Lord, Lord Skelmersdale. Does the Minister accept that there is real concern about whether the work capability assessment is fit for purpose? In the pilots established in Aberdeen and Burnley, will Professor Harrington be able to look at the medical versus the biopsychosocial dimensions of the tests? Some of us believe that the tests are far too medical. My experience working with the Wise Group suggests that people have not medical problems but biopsychosocial problems, which do not admit of an easy medical solution. Will Professor Harrington be able to look at that and give advice to the Government on improving the tests?

[Lord Freud]

I thank the noble Lord, Lord Kirkwood, for concentrating on the important issue of what good health and ill health are, which is extraordinarily difficult to pin down. I am sure that he believes as I do that the well-springs of health are around basic social skills and a sense of meaning and community. When we put people on inactive benefits, we are taking away from them the well-springs of health. It is vital that we help people back into work, which is such an important contributor to their psychosocial well-being. We will watch the WCA very closely to make sure that it does its job, so that we can have the opportunity to get people back to work.

[Baroness Smith of Basildon]

My Lords, I apologise to the Minister for missing the beginning of this Statement, but I have listened with great care to what he has said in response to questions. I think that all of us in this House will share the objective of supporting back into work those who are able to work. However, all this is predicated on jobs being available. The Minister spoke about 600,000 jobs having been taken out of the economy already. The Government’s own policies, particularly public service expenditure cuts, are destined to lead at a conservative estimate to about half a million jobs being lost, with an equivalent knock-on effect in the private sector. There is some difficulty therefore in encouraging people to go back to work while the Government are taking away the very jobs that they can do. What discussions has the Minister had with ministerial colleagues? What discussions has the Secretary of State, Iain Duncan Smith, had with his ministerial and Cabinet colleagues not on job cuts, which we know have taken place, but on job creation?

[Lord Freud]

I thank the noble Baroness for that question. The state of the economy is a fluid entity in terms of where jobs are. While jobs may be lost in some areas, new ones are created elsewhere. We have already seen a good pick-up: 280,000 people went back to work in the last quarter. Independent forecasts for the next couple of years from organisations such as the IMF and OBR are for 2 to 2.5 per cent growth. That would create net new jobs. The jobs will be there, but they may be different jobs.

[Lord Beecham]

My Lords—

Disabled People

Lord Freud Excerpts

Tuesday 27th July 2010 Lords Chamber

[Lord Ashley of Stoke]

To ask Her Majesty’s Government whether they have discussed disability issues with the Royal Association of Disability and Rehabilitation.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, my department engages regularly with RADAR to discuss disability issues. Ministers and officials at the Department for Work and Pensions are committed to a constructive dialogue with RADAR and will seek RADAR’s continued involvement in the Government’s disability equality agenda.

[Lord Ashley of Stoke]

I thank the Minister for that response. Can he be a little more forthcoming and tell us how often these meetings are held?

--- Later in debate ---

[Lord Freud]

My Lords, I believe the Minister for Disabled People, my honourable friend Maria Miller, phoned the chief executive of RADAR in her first week in office. RADAR then attended a round table event that she hosted last month. RADAR is a member of a group of organisations that meets regularly—four times a year—with the Minister. The first meeting of that organisation is tomorrow. RADAR is also a member of the Right to Control Advisory Group, which meets every six weeks with the Office for Disability Issues. There are also ad hoc meetings between RADAR and Ministers and officials across government.

[Lord Ashley of Stoke]

I welcome the discussions but that does not tell me what the Minister has said.

[Lord Freud]

My Lords, to make it clear, we have a regular dialogue with RADAR and the whole disability lobby. I know that my honourable friend Maria Miller has seen 15 different lobby groups so far.

[Baroness Howarth of Breckland]

My Lords, I know that we are particularly interested in ensuring that disabled people can use transport and achieve places in education. What is the Government’s attitude towards those local authorities that are already cutting fees for transport? For example, there is a college where severely disabled youngsters are now being charged for their transport by their local authority for the first time. Is this the kind of policy that the coalition Government are looking towards?

[Lord Freud]

My Lords, I place on record the Government’s determination to push ahead with the equality agenda for people with disabilities. We are monitoring the situation very closely. We are signed up to the UN convention, as this House will know. Transport is one of those areas within the convention on which we are determined to fulfil our obligations.

[Baroness Wilkins]

What steps have the Government taken in their discussions with RADAR to ensure their oft-repeated pledge that the cuts in public spending will not have a disproportionate impact on vulnerable and poor people?

[Lord Freud]

My Lords, we are making sure that all the impact assessments that we are obliged by law to go through are being done on a timely and appropriate basis.

[Baroness Hollis of Heigham]

My Lords, will the Minister kindly tell us what representations RADAR and other disability organisations have made to the Government in light of the proposed severe cuts to disability living allowance?

[Lord Freud]

My Lords, we are just embarking on a process of investigating what to do in the context of DLA. As the noble Baroness knows, this is due to come in in 2013. We have to design a whole structure of making those assessments. We will do so in full consultation with members of the disability lobby.

[Lord Addington]

My Lords, when dealing with groups such as RADAR, will my noble friend bear in mind that, good as they are, they will never be able to cover the whole spectrum and government must always try to drag in such expertise as they can from across all the groups and then they must co-ordinate advice, because without advice we will pass more laws and achieve very little?

[Lord Freud]

My Lords, I thank my noble friend for that excellent point. Clearly, we make an enormous effort to see people right across the disability lobby, not just RADAR. RADAR is part of various groups. It is important that we consult. The House will be familiar with the motto “Nothing About Us Without Us”. We take that obligation very seriously.

[Lord Low of Dalston]

My Lords, I declare an interest as a recipient of disability living allowance. In last Thursday’s debate on the implications of the Budget in relation to poverty, the Minister stated that,

“some laxity has crept into the system”

regarding who is assessed as being eligible for DLA. What evidence is this based on? Which groups of disabled people did he have in mind? He also said:

“We remain absolutely committed to supporting those with severe disabilities”.—[Official Report, 22/7/10; col. 1133.]

To which groups was he referring when he said that?

[Lord Freud]

My Lords, DLA has grown from 1 million people in the early 1990s to more than 2 million at the beginning of this decade to more than 3 million now, which is a huge expansion. Many of those people were self-referred. Clearly, we need to ensure that the money which we spend on people with disabilities is directed at those who really need it.

[Baroness Thornton]

My Lords, the Minister will be aware that many disabled people are helped back into employment by a variety of organisations, including charities and social enterprises—some very small and at very local level. The Government now propose to pay those who provide this support in arrears and by results. Does the Minister accept that many of these organisations will not have the reserves to see them through this important work and that therefore the one size fits all, that is being proposed here, will not work? How is that compatible with big society support for the voluntary sector?

[Lord Freud]

My Lords, if the noble Baroness is referring to the work programme, clearly that is a structure in which consortia will come together and help people right across the spectrum with differential pricing—something which is not currently in existence and means that people concentrate on the easier to help. The work programme will not. The capital is a key ingredient of the work programme. Clearly, capital must go in to support not just the prime contractor but the whole consortia. That is how the smaller organisations will get the resources in order to help the people who need help the most.

Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010

Lord Freud Excerpts

Tuesday 27th July 2010 Lords Chamber

Moved By

[Lord Freud]

That the draft regulations laid before the House on 1 and 2 March be approved.

Relevant document: 10th Report, Session 2009-10, from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 21 July.

Motions agreed.

Poverty

Lord Freud Excerpts

Thursday 22nd July 2010 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I join the noble Lord, Lord Knight, and others in congratulating those noble Lords who have made maiden speeches today. I enjoyed all of them. The noble Lord, Lord Boateng, pointed out the importance of young people at risk and in care, with all the passion that we would have expected from him. The noble Baroness, Lady Donaghy, reminded us that poverty is a complex set of issues. My noble friend Lord Shipley’s focus was on reducing the number of children in poverty and trying to reinforce the cycle of aspiration. Finally but certainly not least, the noble Lord, Lord McFall, with his deserved reputation for calling the Government to account, gave us, and me in particular, fair warning of continuous scrutiny in the years to come. I await that with some trepidation.

I thank all noble Lords who have taken part in this debate. I thank the noble Lord, Lord McKenzie, in particular for giving us the opportunity to tackle the issue of poverty in Britain today. It is an issue close to my heart, and I know that that is shared widely in this Chamber.

The issue, as I have mentioned, is complex, so it is worth putting the impact of the Budget in context. Many of the measures in the emergency Budget were taken in the face of a potential eurozone economic crisis. This was a legacy that we inherited from the previous Administration, with borrowing forecast at a stunning £149 billion this year, the second largest in Europe. The Budget simply had to tackle borrowing and get that deficit down.

We are now on track to cut debt. The figure is £116 billion for next year and £89 billion for the year after. We will get the structural current deficit into balance by 2015-16, when borrowing will be down to £20 billion. Undoubtedly, reducing the national debt to stabilise our finances and get the economy back on track left us with some extremely tough choices. Those choices were made with some key principles in mind. We wanted to align efficiency and value for money with long overdue and much needed strategic reform. We wanted to protect the vulnerable and ensure that our reforms were made with fairness and responsibility uppermost in our minds. In this context, it is worth raising something that always puzzles me and puzzled me today when the noble Lord, Lord McKenzie, excoriated the measures. The previous Administration were also planning very large cuts. They were a little smaller than the ones that we have put through but they were large nevertheless. I am always puzzled by what exactly they would be, since every single measure that we have taken is wrong. However, the Opposition would have had to take at least three-quarters of them in their own programme.

The Budget measures revolve around three key objectives: to make work pay and reinforce responsible behaviour; to reform the welfare system to make it fairer, improve targeting and reinforce conditionality; and to protect the most vulnerable while tackling the deficit. As I said, underpinning the approach is a commitment to fairness. That is why we increased the personal allowance to boost rewards for work for low and middle-income people. As a result, around 23 million basic rate taxpayers will pay up to £170 a year less in tax in 2011-12 and 880,000 people will be taken out of income tax altogether. Wherever possible we have made sure that this is a fair and progressive Budget, tackling the deficit while maintaining the right balance between taxation and spending. Even though we had to make a tough choice on VAT to avoid even greater spending cuts, VAT on such everyday essentials as food and children’s clothing remains zero-rated.

At the same time, we wanted to use the Budget to reform our welfare system and make it fit for the 21st century. My right honourable colleague Iain Duncan Smith has talked extensively about the need for radical welfare reform. I know he will be grateful for the support of the noble Lord, Lord Haskel, for that today. Iain Duncan Smith has pointed out that reform is so urgently needed because so many people are left without incentives to work and abandoned on long-term benefits. That was a point also made by the noble Baroness, Lady Donaghy. Iain Duncan Smith is looking at how we can implement reforms through a far simpler benefits system, and concentrating absolutely on the huge social and economic advantages we will gain as a society if we can move to a more dynamic system that gets this right once and for all.

The case for urgent reform is clear. The welfare budget has spiralled out of control in recent years, rising in real terms from £63 billion in 1996-97 to £87 billion in 2009-10. That includes tax credits. The true cost of our welfare system is not measured purely by the increasing burden on the taxpayer, great though that is. The price of worklessness and welfare dependency is paid by the individual, their families and their children, who get trapped in a cycle of inter-generational poverty. To change that, we need a fundamental reappraisal of the benefits system. As the noble Lord, Lord Bilimoria, said, we need to support those who genuinely need help, but we do not need to put them in a benefits trap. We have already announced our proposals for a new work programme, and in the near future we will introduce key measures to reform and simplify the benefit system to make it fit for the 21st century.

Housing benefit was mentioned by several noble Lords, particularly the noble Lords, Lord McKenzie and Lord Knight. The housing benefit reforms are an excellent example of how we have aimed to balance much needed and long overdue reform with fairness and value for money. In real terms, the cost of working- age housing benefit has jumped by £5 billion in five years, and was projected to reach £21 billion in 2014-15. In his excellent speech, the noble Lord, Lord Best, talked about the cuts in housing benefit. I emphasise that we are not talking about absolute cuts in housing benefit, even in real terms. We have put brakes on the sledge as we go down the run. All we are doing in practice is reducing the £21 billion figure by £1.8 billion. According to the projected forecast, it will still go up by £3 billion in the next four years. However, cost is not the only problem. The scale of these payments has meant that housing benefit has become a disincentive to move into work and has created distortions in the social rented market.

The figures show that 75,000 people get more than £10,000 a year in housing benefit and that some—admittedly, a small number—get more than £100,000 a year, which means that housing benefit is often unfair as some hardworking people could not hope to afford the properties available to some people on housing benefit. It is interesting to note that recent reports in the press indicate that many people agree that the system needs a major shake-up. That is why we have capped local housing allowance levels to the rate for four-bedroom properties, introduced size restrictions to the social rented sector, and changed the percentile of market rents for local housing allowance rates from 50 per cent to 30 per cent. These changes are vital and will reset the balance, making housing benefit fairer and creating reasonable incentives for people to move into work. Tomorrow we will publish the impact assessment on housing benefit so that everyone can see exactly how these reforms will work in practice. I thank the noble Lord, Lord Best, for his recommendations, which we will take back and consider.

As I said, we have had to make very tough choices in order to tackle the deficit, but at the same time our overarching concern is to protect the most vulnerable. That is why many of the measures are progressive, including tax credit reforms that target support away from the better-off and towards lower-income families by increasing the child tax credit.

I pick up the point made by the noble Baroness, Lady Jones, on the freezing of child benefit. That impact is redressed for the poorest by the move on child tax credit. The Budget package recycles £1.2 billion of savings back into child tax credit next year, and £1.84 billion in 2012-13, offering enhanced support to poorer children and families. As a result, the child element of the child tax credit will be increased by £150 next year and by £60 in 2012-13, above the level of indexation. I should also point out that the Budget package has no statistically significant impact on child poverty over the next two years.

I should add something on which I assured the House on 15 June; we are committed to our goal of eradicating child poverty by 2020, and the Prime Minister has asked Frank Field to lead a review on poverty. I hope that that addresses the concerns raised by the noble Baroness, Lady Jones, and the noble Lord, Lord McFall.

The reforms to disability living allowance rebalance our support for the most severely disabled people to ensure that their needs are better met. We remain absolutely committed to supporting those with severe disabilities so that they can live with dignity and independence in their own homes. However, costs have ballooned to £12.1 billion, with the number of claimants increasing by more than half a million in just five years. This suggests that some laxity has crept into the system, which is why we have taken the decision to introduce a new DLA assessment from 2013. This will ensure that the system is fair and that properly targeted support is available for those who need it.

We are applying the same principled approach to reform to benefit pensioners, too, so that older people can enjoy dignity and security in old age. The legacy that we have inherited includes 1.8 million pensioners living in poverty—nearly one in six. We aim to remedy that situation in the long term and encourage people to save responsibly for their future. That is one of our key goals for long-term reform, but we have to be fair and sensitive to the needs of those already in or nearing retirement. This is important, because while we have the levers to tackle dependency and poverty at working age and in an intelligent way, we have to recognise that tackling poverty beyond retirement age is an entirely different proposition. That is why we are doing more to protect pensioners, and why the Government have committed to restoring the earnings link with the basic state pension from April next year with a triple guarantee. This means that pensions will be raised in line with earnings, prices, or by 2.5 per cent—whichever is higher. That is a good start. In reality it is rather better, because we have paid for the unfounded 1.5 per cent clawback that the previous Government left for us when we arrived—a £300 million hole in this year’s DWP budget.

I appreciate the issue raised about using the CPI rather than the RPI, but, as has been pointed out, the CPI is the standard measure used by government and in many cases most accurately reflects the costs borne by pensioners. Let us not forget that pensioners can continue to rely on housing benefit and council tax benefit, as well as benefit from our decision to keep winter fuel payments, bus passes and TV licences. However, the Government are well aware of the need to keep driving reform to ensure that we have a simple, coherent and sustainable pension system.

I have very little time to deal with the many interesting questions asked, although I think that I have dealt with the majority. However, perhaps I may pick up the point about the economy and the pace of fiscal consolidation, which was raised by, among others, the noble Lords, Lord Haskel and Lord Watson. The fiscal challenge in the UK is, by some measures, more serious than in any other advanced economy. That is why consolidation will support recovery, underpinning private sector confidence and creating the space for business to grow. In particular, it will reduce the burden of public sector debt and the effect of interest payments, which, if they get out of hand and we lose the confidence of the markets, will tend to have a significant depressive effect. It is almost a race between those two factors.

The noble Lords, Lord McKenzie and Lord Haskel, talked about the VAT rise, saying that it was regressive. The Institute for Fiscal Studies, which has been much quoted today, has said that total expenditure is arguably a better guide to lifetime living standards, as households smooth their expenditure over their lifetime. Therefore, analysis by expenditure, rather than income level, is a better measure of the impact of the VAT increase and, on this basis at least, the VAT increase is progressive.

A number of noble Lords argued that the poorest families will bear the biggest burden. The noble Lords, Lord Watson and Lord Boateng, and the noble Baroness, Lady Jones, made that point. This is a progressive Budget, with every part of society contributing to dealing with the deficit, but the rich are paying more than the poorest. There is a handful of questions that I do not have time to deal with, but I shall of course write to noble Lords to pick up those points.

In conclusion, we live in a wealthy country, yet more than one in four working-age adults do not work, 5 million people are trapped on benefits, 1.4 million people have been receiving out-of-work benefits for nine out of the past 10 years, and a higher proportion of children—2 million of them—grow up in workless households than in almost any other country in Europe. That is why the measures that we introduced in the Budget could not just be about getting the deficit down; they also had to form an integral part of the long-term reforms that Britain needs to reinvigorate the economy and tackle poverty—not just the symptoms of poverty but the causes, too. Our welfare and pension measures, combined with our plans to support private sector job creation and reduce the impact of the proposed jobs tax, will allow this country to move forward from the recession stronger, fitter and more resilient to take on the challenges of the future.

Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010

Lord Freud Excerpts

Wednesday 21st July 2010 Grand Committee

Moved By

[Lord Freud]

That the Grand Committee do report to the House that it has considered the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010.

Relevant document: 10th Report, Session 2009–10, from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, the Government are committed to reinvigorating pensions, and a robust protection regime for company pensions is essential so that people have the confidence to save. Noble Lords will be aware that Parliament legislated, with cross-party support, for a new regime. The Pensions Act 2004 created two new bodies, the Pension Protection Fund and the Pensions Regulator. These bodies are delivering improved protection for scheme members, helping to renew confidence.

These two sets of draft regulations, which the previous Government consulted on, will respectively mean that the UK Government meet a European Commission ruling and ensure that the protection regime operates effectively. The first set of draft regulations concerns the Pension Protection Fund and a state aid issue. I hope that noble Lords will bear with me if I am not able to answer some detailed questions which I am sure will emerge. BT plc has appealed to the Court of First Instance on the state aid ruling, and last Friday the High Court concluded a hearing brought by the trustee to determine the precise meaning of the scheme’s Crown guarantee. Some answers from the court are likely next week, but several key issues remain to be explored by the court after that.

Noble Lords will be aware that the Pension Protection Fund was set up in 2005 to protect members of eligible pension schemes which are mostly final salary defined benefit schemes. It does this by paying compensation to members of eligible pension schemes when the sponsoring employer has become insolvent and there are insufficient assets in the scheme. The PPF is financed through levies on eligible defined benefit schemes, residual assets of pension schemes transferring into the PPF and investment returns. The administration costs of the PPF are paid for by money provided to the board by Parliament. This money is then recovered by an administration levy from schemes eligible for the PPF. A small number of schemes do not pay the PPF pension protection levy or the PPF administration levy. These are defined benefit pension schemes with a full Crown guarantee and therefore do not require the protection of the PPF.

A Crown guarantee is a promise given by a public authority to stand behind the liabilities of a pension scheme should the scheme wind up in deficit. The precise nature of the Crown guarantee and what it protects varies, but broadly the result is the same—these are schemes whose liabilities are ultimately underpinned by the taxpayer. In some cases, the Crown guarantee covers only a particular part of the scheme, certain members or certain benefits. These are known as “partially guaranteed schemes”. Such a scheme would have to pay an administration levy only in respect of the part of the scheme that is not covered by the guarantee.

In many circumstances, Crown guarantees for pension schemes do not present a problem as the sponsoring employers are not commercial entities operating in a competitive market. In 2009, the European Commission reported on an investigation into whether the Crown guarantee for certain liabilities that BT had to the pension scheme gave rise to an incompatible state aid. The Commission decided that the non-payment of the PPF levies by the BT scheme could not be justified under EU rules because it relieved BT from charges that its competitors had to pay and was therefore an incompatible state aid. It is important that the Government do not unduly distort competition in competitive markets through state aid. Consequently, the UK Government were required to cease the incompatible state aid and ensure that the BT scheme paid the full PPF levies.

In February 2010, the previous Administration made regulations by negative resolution to remove the exemption from paying the PPF pension protection levy. This followed consultation last autumn on draft regulations. This pension protection levy is set by the board of the PPF, is intended to raise £720 million in 2010-11 and is one of the ways by which the PPF funds the compensation payable to members of schemes in the PPF. This set of regulations will complete the action and remove the exemption from the PPF administration levy where it gives rise to an incompatible state aid. This second levy funds the running costs of the PPF and is set at the much lower level of £22 million in 2010-11. These regulations are the final part of implementing the Commission's decision. The Commission's decision in respect of the BT pension scheme applies only to that scheme. However, the Commission will expect the UK Government to apply the same reasoning to schemes in a comparable legal position, and where the facts are the same. These regulations are therefore drafted in such a way.

I turn to the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010. The Pensions Regulator commenced operations in April 2005. It was established as an arm’s-length body and charged with regulating workplace pension schemes. Noble Lords will be aware that Parliament gave the regulator important powers, with cross-party support, to address the risk of avoidance activity. Avoidance is an attempt by a sponsor employer deliberately to walk away from its statutory pension obligations—for example, as part of a corporate restructure—or to offload them onto the Pension Protection Fund. This activity would have serious cost implications for those schemes that will remain responsible for paying the PPF pension protection levy.

One of the regulator's main powers to address the avoidance activity is the contribution notice. This requires a cash sum to be paid to the scheme, or to the board of the Pension Protection Fund, up to the value of the sponsor employer's full statutory debt to the scheme. There are legal tests to ensure that this power is used appropriately. For example, the regulator must be of the opinion that it is reasonable to exercise its powers and it must have regard to certain factors, where relevant, when forming its decision. These factors include the avoidance of involvement of the person in the act of avoidance, and the connection or involvement which the person has or has had with the scheme.

The Pensions Act 2008 amended the contribution notice power to close a loophole. The problem was that under the 2004 Act, the regulator was prevented from issuing a notice to any scheme other than the one in relation to which the avoidance occurred. This meant that an employer could avoid a contribution notice by transferring the members to another scheme. Requiring the employer to pay funds to the original scheme would not assist those transferred members, so a contribution notice might not be justified. Parliament agreed legislation, with support from all sides of the House, to permit the regulator to direct the notice to the scheme to which the members had been transferred.

These draft regulations, which are required under the 2008 Act, simply set out how the regulator must calculate the amount to be specified in a contribution notice where members are transferred from a defined benefit to a defined contribution scheme. The 2004 Act already provides the means for calculating this amount in respect of defined benefit funding rules, and these regulations provide the means for calculating the contribution notice sum where those rules do not apply. There are important safeguards, including that decisions to use the contribution notice must be made by the regulator’s determinations panel, which is independent of the evidence-gathering part of the regulator.

In my view, there is no undue impact on business, and consultation responses supported this. These regulations will in fact provide certainty for business on how this power works. In my view, the provisions of the Occupational Pension Schemes (Levies) (Amendment) Regulations 2010 and the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010 are compatible with the European Convention on Human Rights. I commend the two sets of regulations to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for a precise and extensive explanation of these orders. Given that, as he indicated, they were promulgated under the previous Government, it will come as no surprise that we do not propose to oppose them. Notwithstanding the fact that I had command of the Pensions Act 2008, I do not propose on my account to delay the Committee much on these issues.

There are just a couple of matters in relation to the contribution notices on which I wonder if the Minister could update me. I went back and read a bit of the Hansard debate—sad person that I am—and it reminded me what a joy that episode was in my life. I recall that there were issues around the extent to which anti-avoidance measures should be written into the primary legislation to give assurances to businesses, trustees and sponsors of pension schemes, and how much should be left for a code of practice and other means to maintain flexibility to be able to ensure that new avoidance devices that came along could be properly addressed. On that issue, does the Minister’s experience to date—I accept that that experience to date has not been extensive—suggest that the balance of that approach was right? It was a matter of some debate at the time. Are there any emerging avoidance schemes of which we are aware, where we think that the anti-avoidance framework is not sufficient or does not give sufficient powers to the regulator to address those issues?

In the past there were proposals for insurance-based schemes that would, it was suggested, negate the need to pay the PPF levy because an insurance company would stand in the stead of the PPF. At the time, because the PPF was emerging and still something of a fledgling body, the previous Government were not prepared to entertain that, although there were issues about whether the benefit of an insurance contract could be a contingent asset for PPF purposes in doing the calculations. Will the Minister update me on whether there has been any further progress in those sorts of schemes and whether the current Government are minded to take a different view from the one that we took?

The levies order is pretty straightforward and we do not take issue with it, although I ask the Minister if he could give us a general update on the PPF and where it stands in the context of the current pensions framework. In the immediate past there were a number of challenges about whether the PPF would be able to withstand the thrust of new schemes that might be entering into the PPF—I think our line at the time was that there was 20 years’ worth of cash flow there, and that was the key driver. An update on that would be helpful, perhaps with an idea of the number of schemes currently covered by it.

--- Later in debate ---

[Lord German]

My Lords, I, too, intend not to keep the Committee long. I shall raise a few further questions on both these orders, particularly on the levies order, just for explanation purposes.

I declare an interest: my daughter works for BT and is a member of its pension fund. I recognise that this set of regulations on the levy is still subject to legal actions, and those have not been exhausted. I also note, of course, that the regulations themselves apply more universally to the Crown guarantee, and those who would be affected are not exclusively in the name of that one company. Could we have some indication of the existing companies that may already be entrapped or changed by this regulation? I am particularly interested to note that there are former railway pension schemes that may be caught in this regulation, but it would be useful to know who else would be affected and whether they would be affected in both the partial and the full sense.

I recognise that these regulations affect only the administration levy and that the House has already dealt with the regulations in respect of the levy as a whole. The state aid recommendation, as expressed by the European Commission, applied only in respect of BT. I note the Government’s comments that they expect other bodies in the same field that have been caught by this change to be encompassed in the regulation. I wonder whether and how the Government are going to move with the other companies who will be affected by it, and whether they will be expected to pay a backdated administration charge, because the impact on the pension schemes is important—especially as that is a contemporary issue for occupational pension schemes. Have the Government made any assessment of the impact that these regulations and the preceding regulations that affected the whole of the levy payments will have on those schemes? Will that make a substantial difference to the benefits that they can offer within those occupational schemes?

Can my noble friend indicate how other bodies that are currently in receipt of the Crown guarantee, and which then move into a situation whereby they would not naturally receive that under the European direction that we have been given, would be affected? What tests would be applied to determine whether the regulations would kick in? Would such a test be whether they are privatised, to use an old-fashioned word, or whether they are in a competitive situation? Or do both tests apply? It is probably the case that the determination will have to be based on one or both of those tests and I should be grateful if the Minister could tell me which of those apply.

In respect of the regulations on contribution notices, there is only one area on which I should like to ask my noble friend a question—in relation to paragraph 7.3 of the Explanatory Memorandum, which states:

“The policy intention … is to provide a calculation which offers equivalent protection”.

Does that mean, in effect, that if there was a move from one scheme to another, the benefits that would be received by members of that pension scheme would therefore be the same? Or is there a different definition of equivalence which I perhaps do not understand?

On that basis, the Government are absolutely right to pursue both sets of regulations.

[Lord Freud]

My Lords, I thank noble Lords for their contributions and I am glad that we were able to take the noble Lord, Lord McKenzie, on such a romantic trip down memory lane, although I sensed a little bitterness in his observation.

The first set of regulations addresses a fairly narrow issue relating to state aid. They are intended to address the rare situation where a reduction in the PPF levy for a pension scheme with a Crown guarantee, sponsored by a commercial entity, provides an unfair advantage. The regulations will ensure that the UK Government have complied with the European Commission’s decision and met their obligations. The second set of regulations provides the means for the regulator to calculate the amount of a contribution notice in certain cases, but only where the grounds for the use of this power have been met.

I turn to the points raised in the debate, and first to those made by the noble Lord, Lord McKenzie. He asked whether insurance contracts can be used. They may indeed qualify as contingent assets for the purposes of calculating the PPF levy, although there have been no recent representations on this matter and no changes in the law are currently planned.

The noble Lord asked what the experience of the Act had been in practice. As he said, these are early days, but I have pleasure in assuring him that, so far, the Act, which I acknowledge he was responsible for, appears to be working well. The noble Lord asked about activity in terms of emerging avoidance schemes. There are none that the Government are currently aware of. As he will know, the department and the Pensions Regulator work together closely in order to monitor the effectiveness of the legislation and ensure that it remains robust. He also drew our attention to paragraph 7.2 of the Explanatory Memorandum and the phrase,

“and only pay an administration levy in respect of the non-guaranteed part”.

I have pleasure in confirming for him that he has not found a flaw in the regulations because that is exactly—

[Lord McKenzie of Luton]

My Lords, the copy I have before me states,

“and only pay an administration levy in respect of the guaranteed part”.

[Lord Freud]

I thank the noble Lord for that. I have in front of me a piece of paper stating “the non-guaranteed part”, and it should be the non-guaranteed part. I hope that he does not have an earlier misdraft. I can assure him that the draft regulations we are considering use the term “non-guaranteed part”. If an earlier incorrect draft has been floating around and if that is in any way our responsibility, I of course apologise. But in the correct form it is “non-guaranteed part”. I have to congratulate him on his eagle-eyed spot, albeit of what would seem to be an out-of-date version.

The noble Lord asked where we stood on the levy. I have some information about that which will be handed over immediately. There are now 160 schemes in the PPF, and no doubt he will also be pleased to learn that the movement in the markets has meant that the deficit in the Purple Book has narrowed very appreciably. As of 30 June, it stood at around £21 billion.

I turn now to some of the points raised by my noble friend Lord German. He quizzed me on how this situation may affect other companies. The regulation reads rather misleadingly as if it is a very wide universe, but in practice, BT is the only commercial company operating in the marketplace where these regulations are relevant. We do not need to think about how this might affect other companies because there is only one other organisation with a partial guarantee, and that is Bradford & Bingley, which has been cleared by the European Union.

On the BT consultation, covered in paragraph 26, the guarantee to the company does not give it aid because it takes effect only at the time of insolvency. Where it does provide aid is by reducing the PPF levy while the company is extant.

[Lord McKenzie of Luton]

I am sorry to interrupt the noble Lord again, but I think that was a point that I may have touched on. Is there a potential for us to end up in a situation where if in fact BT were to become insolvent and therefore could not meet its obligations—obviously there is a big “if” attached to that—the scheme would have the benefit of the guarantee and would have had the benefit of PPF protection? My question concerns how those two things sit together and on what basis the levy is computed in those circumstances.

[Lord Freud]

I thank the noble Lord for that smack-on-the-nose question. It is much harder to give a smack-on-the-nose answer, because we are waiting to find out the implications of the legal case. The noble Lord is asking me to pile hypothetical on hypothetical and it is not possible at this stage to give a sensible answer. We could go on piling up the hypotheticals, but it would rapidly become silly, so I crave his patience at this stage. It is simply not possible to wonder how the different levels of guarantee and PPF protection may or may not interrelate.

Occupational Pension Schemes (Levies) (Amendment) Regulations 2010

Lord Freud Excerpts

Wednesday 21st July 2010 Grand Committee

Moved By

[Lord Freud]

That the Grand Committee do report to the House that is has considered the Occupational Pension Schemes (Levies) (Amendment) Regulations 2010.

Relevant document: 10th Report, Session 2009–10, from the Joint Committee on Statutory Instruments.

Motion agreed.