Welfare Reform

Lord German Excerpts

Thursday 11th November 2010 Lords Chamber

[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.

Welfare Reform

Lord German Excerpts

Monday 11th October 2010 Lords Chamber

[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.

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

Lord German Excerpts

Wednesday 21st July 2010 Grand Committee

Is that right?

[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—

Employment and Support Allowance (Transitional Provisions, Housing Benefit and Council Tax Benefit) (Existing Awards) Regulations 2010

Lord German Excerpts

Tuesday 20th July 2010 Lords Chamber

[Lord Kirkwood of Kirkhope]

My Lords, I am delighted to follow my noble friend. I declare an interest: as my colleagues may know, I am a non-executive, non-remunerated director of the Wise Group in Glasgow.

My noble friend Lady Thomas has an eagle eye for finding statutory instruments and Orders in Council which are of serious significance. Her experience in both the Merits Committee and now in the Delegated Powers Committee serves the House well and we are in her debt. These are important regulations. My spies, of whom there are many, tell me that, technically, they are legally ambiguous. If I did not know the noble Lords, Lord McKenzie and Lord Knight, as well as I do, I would think that this was a deliberate Labour spoiling tactic to leave a gremlin in the system to subvert the confidence of the incoming coalition Government. However, that is a quite unqualified and undignified accusation and I make it only in passing.

There are some technical ambiguities in the regulations. This serves to demonstrate how important it is to simplify some of these systems. If the professionals dealing with these regulations cannot make up their minds whether or not they are clear, I do not know who can.

I wish to make one or two brief points about the significance of the long-term implications of these regulations. I am an unqualified supporter of Professor Paul Gregg’s personalised conditionality concept. During the course of the Welfare Reform Bill last year, colleagues will have heard me expound this theory. Professor Gregg rightly captures the deal we will be offering people in future. Yes, there will be conditionality and people will have to be responsible for their actions, but the deal has another side to it: there will be a tailored, sensitive conditionality over which they will have a voice and which they will be able to help mould and shape for their own personal circumstances. That is the offer. The offer has two sides to it, both of which are important.

These orders should not to be considered in the context of the panic caused by the deficit-reduction problems that we face right now, because I hope that this system will sustain the support that we give to people in these circumstances not just for the three years of the next comprehensive spending period but for five, 10 or 15 years. If it works and can be made to work well and sensitively, it will serve us in the long term. Therefore, the regulations should not necessarily be shaded or influenced too much by the financial circumstances that immediately face us, although they are significant.

We need to be realistic about how many people we can expect to help in the short term. If we manage to get upwards of 1 million people back into remunerative work where they have some prospects of job retention and progression, it would be a marvellous success. If expectations are too high, particularly if they are driven by the perception of cuts and not of progressive policy changes, we will be in some trouble. We need to be realistic about what we can achieve. We shall get a better policy outcome in delivery if we do that.

We should work with the willing. Jobcentre Plus staff at the front line know this. I agree with my noble friend: everybody in Jobcentre Plus offices that I visit is in the front line. The only people in the back are the managers; perhaps we can get rid of some of them in order to support the front-line staff. The only people who are backstage are the big cheeses; it is the front-line people whom we are trying to support. We need to work with the willing. It is clear from my work in the Wise Group that there are people who are anxious and positively engaged in trying to get back to work. If you can have success with some of them early on, the word spreads and you get positive feedback. People then say, “Well, if it’s worked for my next-door neighbour, then I hope it can work for me”.

There is a spatial dimension to this problem. That is nothing new. Anybody who has studied these policies in the past understands that labour market conditions in Reading are different from those in Merthyr Tydfil or downtown Liverpool. When the policy is rolled out from October, and subsequently when it is rolled out nationally from February, that needs to be borne in mind. For the reasons that I gave earlier, conditionality must be sensitively applied in favour of the client as often as possible.

I am therefore confident that there can be a coherent policy. The direction of travel is absolutely right. Both Front Benches have made as much progress as they reasonably can. It is a very difficult area, and it is made more difficult by the financial circumstances, but it is the right thing to do. However, we need a coherent, long-term policy. We should think about a single working-age benefit. It is hard to get from where we are now to there; it will take time; but we should do nothing that gets in the way of that and makes it more difficult.

My noble friend spoke about providers. I think that some providers believe that the quality of the medical personnel who do the medical examinations which inform this process could be better. The decision-makers who take forward that work—it is crucial work for the individuals that it affects—need to have some responsibility for making sure that the quality of the medical reports is consistently good. If it is not, there needs to be something in the system that gives them the ability to say to Atos or their line managers, “I’m really not comfortable with the medical evidence that I am getting that informs my decisions”. That is an important piece of the business model that needs in the implementation to be carefully considered. I know that my noble friend is aware of it and I am confident that he is on the case. I hope that he will do everything that he can to make sure that those decision-makers get the best information so that they can make the best decisions possible.

The explanations given to people on incapacity benefit when they are first contacted, and subsequently when the policy is rolled out after February, need to be clear. I hope that the quality of the offer that is being made—I hope that it is an offer because as I said it is personalised and conditional—will be explained to them. The responsibilities that they have are different. Some of them fall foul of those responsibilities because they do not know what they are. In the past, that has been because some of the letters and communication strategies that have been used have been opaque. If you are confronting this situation for the first time and are in a vulnerable household, the last thing you need is ambiguity about what you are facing. We need to be crystal clear about what we now require—because “require” is the only verb that can be used in this new situation.

Also, from a provider point of view, there is a lot of concern about people who leave the system. There are people who should not have been in the system in the first place, but an estimated 30 per cent will exit the system. American experience suggests that a lot of those people become destitute, and that is not in anyone’s interests. In America you can move to the next-door state and start again. You cannot do that in the United Kingdom so we need some follow-through to make sure that people are not being dumped. The object of this policy is not to dump people: it is to apply it to people who are properly eligible. If my noble friend could give me some assurances about that I would be grateful.

This is not just about people getting people into sustainable jobs. I am pleased that we are talking about what I would consider to be sustainable jobs and not just jobs for 13 weeks, which was never sustainable under the old system. We are making progress in that direction, but we need to talk about job retention and advancement as well. We must not lose sight of that. We need to be able to say to people that, even if they are getting ready for work and nearer the labour market, this is all about giving them work experience from which they can benefit. Therefore, as my American colleagues all say, they start with any job, move to a better job and then on to a career. They are being offered an ABC system. That is part of the offer. If we can do that, and it is possible with the proper back-up, support and implementation of the policy, then this is a win-win situation for everyone.

I am certain that my noble friend on the Front Bench is having all sorts of frayed conversations with the Treasury. I would like to strengthen his arm—his hand, rather, because strengthening your arm is to do with drinking. To strengthen the hand is a Quaker concept which I understand is more beneficial to everybody. I hope that he will hold out. If this policy is to work, there will be a degree of invest to save across the broader policy front. If he does not win support from his colleagues in that direction, even if the policy is absolutely 100 per cent, with the best will in the world, he may still fail because we cannot do this if there is absolutely no money to give people the opportunity to train themselves off benefit and into work, which is the idea behind the policy.

[Lord German]

My Lords, I also rise to support my noble friends in welcoming the intention and general thrust of these regulations and changes. Supporting incapacity benefit claimants into work and making sure that people are on the right benefit with the right level of support is obviously the correct thing to do. There is no doubt either about the significance of these regulations. About 1.5 million people in our country will be affected and some of them are the most vulnerable in our society. The issues that I want to comment on, therefore, are not about the principle but about the process of migration—“it ain’t what you do, it’s the way that you do it”.

There are two outcomes that I am sure my noble friend the Minister will wish to avoid—the unexpected and the unintended. The unexpected might be failure somewhere in the process of change—perhaps a blockage in the appeals process or a group of vulnerable people who are marginalised by the whole process. Since it is unexpected, all you can do is ensure that the system is as robust as possible and that everything is in place before it migrates and is therefore able to withstand the shocks. The unintended consequences, however, can be guarded against more easily. For that we look to the reports of the Merits Committee and the Social Security Advisory Committee. They have produced a clear, evidence-based set of reports, which should help to steer the Government through the maze that is the migration process.

As I know from the dates given on the SSAC report and the Government response, it appears that the response is from the previous Government. I therefore offer a brief analogy to my noble friend the Minister, based on my experience. I took over a ministerial portfolio in Wales; one month beforehand, the previous Minister from another party in a coalition had thrown the switch on a new computerised payment system for farmers. The system was intended to surpass anything else in the past; it was all-singing and all-dancing, and introduced a new payment structure. Needless to say, it went terribly wrong in year one but was corrected and became an exemplar system in year two. I shouldered a large part of the anguish of the claimants while my predecessor escaped without a scratch. I hope that our noble friend will benefit in coming out of this without a scratch.