Online Marketplaces: VAT Evasion

Debate between Lord McKenzie of Luton and Lord Bates

Monday 22nd October 2018 Lords Chamber

[Lord Bates]

We sympathise with those people, which is why we have listened to the calls that have been made. We have introduced pioneering joint and several liability for marketplaces and are introducing a due diligence system. While we are working through the G20 and the OECD, we are looking at initiatives that could be considered to solve the problem, such as split payments to ensure that VAT is automatically paid when someone domiciled in the UK makes a transaction.

[Lord McKenzie of Luton (Lab)]

My Lords, the PAC noted that HMRC does not know how many fulfilment houses, or packaging establishments, there are in the UK and is therefore unable to systematically target VAT fraud. Is that right? If so, what will the Government do about it?

[Lord Bates]

That is right, which is why we require those establishments to register.

Police Funding

Debate between Lord McKenzie of Luton and Lord Bates

Monday 9th November 2015 Lords Chamber

[Lord Bates]

I will certainly do that. I am grateful for the letter, which I recall receiving and drafting a response to. Merseyside has done a lot of innovative things in working with other blue light services to decrease response times and reduce costs. I hope that will be taken into account when future responses and changes are made.

[Lord McKenzie of Luton (Lab)]

My Lords, in the recent Peel efficiency inspection, Her Majesty’s Inspectorate of Constabulary said of Bedfordshire police that it was concerned that the force’s,

“long-term financial position is not sustainable”.

Regardless of whether the correct data are being used, it appears that the formula review totally fails to address the viability of Bedfordshire police. What will the Home Secretary and the Minister do to ensure that Bedfordshire police are adequately and properly funded to deal with the many challenges that they face?

[Lord Bates]

I am conscious that Bedfordshire has a particular case because it covers a large rural area and the centre of Luton. That makes policing and the allocation of the budget particularly difficult. I know that, like Merseyside, it has been innovative and has recently sought to raise the precept through a local referendum. Bedfordshire is a difficult case, which is one of the reasons why we proposed transitional funding arrangements under the old plan, but now we are back to square one and have to look at that again.

Health and Safety Executive

Debate between Lord McKenzie of Luton and Lord Bates

Thursday 3rd April 2014 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and in doing so draw attention to my interest in the register.

[Lord Bates (Con)]

My Lords, Martin Temple’s triennial review of the HSE concluded that the functions performed by the Health and Safety Executive are required and that it should be retained as a non-departmental public body. He made recommendations concerning potential efficiencies and opportunities to raise income, and the Minister for Disabled People has asked the HSE to work on these. Other recommendations require further consideration, and we will respond more fully later in the year.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for what I take to be a positive reply. The Minister will be aware that the report refers to the “nearly universal praise” for the HSE, which it considers a reflection on its,

“impartiality … independence … professionalism and technical competence”.

What assurances can the Minister give that any requirement placed on the HSE to increase its commercial income will not impair those vital attributes, and what more can the Government do to promote the excellence of the HSE and the UK health and safety system?

[Lord Bates]

I am grateful to the noble Lord for that question. I think that Martin Temple pointed out exactly that. He paid tribute to the work of the HSE, which it does day in, and day out, in maintaining safety standards. One reason why this country enjoys such high standards of health and safety in the workplace is because of the work of the HSE. It is of course necessary to ensure that its work is efficient and effective. For that reason, he suggested that the HSE focus its efforts on major hazard sites rather than those areas of relatively low risk. That is what it has been doing over the past couple of years.

Financial Assistance Scheme (Qualifying Pension Scheme Amendments) Regulations 2014

Debate between Lord McKenzie of Luton and Lord Bates

Tuesday 11th March 2014 Grand Committee

[Lord Bates (Con)]

My Lords, I am satisfied that these regulations are compatible with the European Convention on Human Rights. The Financial Assistance Scheme provides financial assistance to members of certain occupational pension schemes who have lost a significant part of their pensions as a consequence of their scheme winding up or being underfunded. Generally, the FAS is limited to schemes that began to wind up before 6 April 2005. This is because the Pension Protection Fund deals mainly with schemes with insolvent employers from that date. However, schemes have been discovered which, for various reasons, fall between the two schemes: they do not qualify for the PPF, but they cannot get access to the FAS. There has been a long-standing principle that schemes should enter the PPF only if they have been subject to all the protection provisions such as funding and employer debt, and have been subject to the PPF levy. Nevertheless, successive Governments have accepted that it is not reasonable to leave members with neither assistance from the FAS nor compensation from the PPF simply because the qualifying events did not happen in a specific order. These regulations deal with one of these situations.

In order for a scheme to qualify for entry to the PPF there must be a qualifying insolvency event on or after 6 April 2005 relating to what is known as the “statutory employer”. To be such an employer, you must employ at least one active member of the scheme. In 2009, a scheme applied to be considered for the PPF. However, it was discovered that while the employer attached to that scheme did become insolvent in 2009, it was not the statutory employer. On further investigation it was found that the actual statutory employer became insolvent in 2002, before the PPF was established. Unfortunately, as this scheme did not begin to wind up until 2009, it is also unable to look to the FAS for help. Rather than leave the members uncovered, the Government have decided to extend the coverage of the FAS to encompass this scheme and any other scheme in these circumstances. That is what these regulations do.

Specifically, the regulations extend the FAS qualifying conditions to cover schemes which began to wind up between 23 December 2008 and before these regulations come into force, where the employer ceased to be a statutory employer before 10 June 2011, and where the employer became insolvent before 6 April 2005. These dates may appear to be very specific and perhaps I should explain why they have been chosen. The first condition of winding up between 23 December 2008 and before these regulations come into force reflects the fact that schemes which commence wind up before 23 December 2008 due to an insolvency event prior to 6 April 2005 are already catered for in the FAS regulations. The second condition is that the employer must have ceased to be a statutory employer before 10 June 2011. This date is the date that we announced our intention to make the extension. It was important to limit the potential scope of the extension in this case to prevent any incentives for employers to break links with schemes that they were supporting. The third condition of the insolvency event occurring before 6 April 2005 prevents overlap with the PPF qualifying conditions.

I hope that I have explained that these regulations are designed to ensure that members receive assistance from the FAS and I commend them to the Committee. I beg to move.

[Lord McKenzie of Luton (Lab)]

My Lords, perhaps I may put two brief questions to the Minister. There is no impact assessment attached to these regulations, but my recollection is that the FAS is funded from the public purse and not, as is the case for the Pension Protection Fund, from the levy. It may be that it is just de minimis in the scheme of things because we are dealing with only one identified scheme at the moment. However, I would be interested to know what the costs of this in terms of additional FAS spending might be. Perhaps the Minister might take this chance to update us on what the annual ongoing costs of the FAS currently are. Can the Minister also clarify for me, in relation to the particular scheme that has been identified, whether it had been paying the protection levy? If not, why was it outside of that?

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation and my noble friend Lord McKenzie for his, as always, insightful questions. I am very pleased to see the Government’s ongoing support of the Pension Protection Fund set up by the previous Labour Government. The PPF has made a substantial difference to people’s lives. As regards schemes including Woolworths, MG Rover and Turner and Newall, the members would all have had much lower pensions had it not been for the PPF and the Financial Assistance Scheme. I also welcome the Government’s continued support for that scheme.

I would like to ask a couple of specific questions. First, I recognise that the Minister is trying to close a specific loophole and obviously the changes relate to a particular case. I must confess that the Opposition are therefore unsighted on some aspects of this. Following on from the question of my noble friend Lord McKenzie, can he explain a bit more about the Government’s thinking in deciding to plump for the FAS as opposed to the PPF, rather than leaving the members of a scheme ineligible for either, because that would seem to be the key question?

Secondly, obviously, the Government have not brought forward an impact assessment for these regulations. The Explanatory Note was helpful in explaining the long gap between the consultation process and these being brought forward, but will the Minister confirm that there is a timescale for further consolidation of the regulations on which the Government consulted in 2011, and that an impact assessment will be brought forward to accompany those changes?

[Lord Bates]

I am grateful for those questions. In terms of context, we are talking about a specific scheme with a number of members—the George and Harding pension scheme. To answer the point made by the noble Lord, Lord McKenzie, the scheme had not been contributing to, or paying, the PPF levy and therefore was not able to claim under that procedure. Therefore, we are changing the relevant dates so that we do not break the contributory principle of the PPF but ensure that financial assistance is made available. The noble Lord, Lord McKenzie, is as astute as ever and I am sure that the noble Baroness, Lady Sherlock, as a former adviser in Her Majesty’s Treasury, will also be aware that Her Majesty’s Treasury did seek to have some idea of what the impact would be on the Exchequer. The estimated full cost of the FAS contribution is £600,000, which comes out of the Exchequer over time because, obviously, that will be the way that people will be compensated as and when the funds will need to be drawn down. That is also the reason for the specific dates because we are trying to cope with a specific scheme rather than giving an open-ended commitment. Having demonstrated this, I hope that we can point to the fact that, should similar gaps in certain schemes arise in the future, we will look very carefully at them without giving any cast iron guarantee.

[Lord McKenzie of Luton]

Can the Minister clarify whether the £600,000 is the net present value?

[Lord Bates]

That is the net present value of the cost of the scheme. Annual ongoing cost differs depending on the schemes taken in. I do not know how helpful that is but we try to be as fulsome as we can. Has the relevant firm been paying the protection levy? I have covered that point but that does not mean that it gets entry into the scheme. It was thought that the employer supporting the scheme was a statutory employer. I think that is the point we are dealing with here—the definition of a statutory employer. It was realised that it was not only after investigation. When will we consolidate the FAS regulations? As noble Lords know, there is a great deal happening in the pensions area, to be continued on Centre Court tomorrow, I think. This requires the department to prioritise its resources. The consolidation of the FAS regulations remains on the department’s work plan but I cannot give a definite date as to when the draft consolidation regulations will be laid before Parliament. I am grateful for the probing questions I have been asked. The noble Baroness, Lady Sherlock, looks as though she wants to come back in.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Bates

Monday 20th January 2014 Grand Committee

[Lord McKenzie of Luton (Lab)]

My Lords, I support my noble friend’s amendment. Auto-enrolment has, initially, clearly been a success and the Government deserve credit for implementing the policy. But we should recognise that we are just at the beginning: although it has been up and running for 18 months, we are just approaching the point in April this year when smaller and medium-sized employers, those whose largest PAYE scheme covers between 50 and 249 employees, have to commence their duty.

There have already been a range of changes to the process, implemented by regulations, resulting from a review of early live running. Those changes mostly came into force last November, although some are due this coming April. The consultation on the draft regulations also canvassed views on other changes, including the proposition of excluding a certain category of worker from auto-enrolment. It sought more information on three situations, identified that it had a substantive response to the use of an exception, and committed to publish the results, with government proposals and a further consultation. When will the results be published? Will it be before Report? At the very least, can the Minister provide us with a list of the circumstances being considered, if those extend beyond the three identified in the briefing note, which states:

“The initial evidence suggested that there is a case to re-examine the appropriateness of the employer duty in some, very carefully specified, circumstances”?

However, as my noble friend has clearly set out in the amendment, the power taken in Clause 37 is a very wide one.

The circumstances covering someone handing in their notice, where the notice spans the automatic enrolment date, and where an active scheme member gives notice of retirement and stops making contributions could, it is suggested, be the subject of specific amendment. As for those individuals with fixed or enhanced protection for their lifetime allowances, the Minister might tell us how an exclusion might be framed so that the employer could operate without input from the worker. That those circumstances need to be addressed to avoid detriment to workers is clear, but at present the encouragement from HMRC is to do so by opting out. If the system for exemption depends on the worker lodging the existence of enhanced or fixed protection, perhaps with some validation from HMRC, I am not sure that that is a more effective route than the worker simply opting out.

If the rationale for Clause 37 is based on just those three circumstances, I am bound to say that it is not overly convincing. If we are to understand that a range of other circumstances have been identified which justify the clause, we must be entitled to know what they are. The Government must be aware of them from representations that they have already seen. The briefing note sets down some core policy principles against which suggested exclusions are to be tested. One of these is:

“Are the individuals unlikely to benefit from pension saving?”.

This has echoes of some of the challenges to auto-enrolment when the policy was first originated and being developed, particularly around older women just approaching retirement.

It is entirely reasonable that there will be changes to the operation of auto-enrolment arising from practical experience, but we should be cautious of wide powers to remove the employer duty of enrolment. That is the cornerstone of the policy. Of course, we are mindful that the duty has already in practice been narrowed by aligning the starting point with the level of the income tax personal threshold, thereby removing thousands of the low-paid from its benefits. We are also mindful that there is a subtext to the overall Bill about generating savings for the Treasury, so my noble friend is right to be cautious about this clause.

[Lord Bates (Con)]

My Lords, it is now two years since the rollout of automatic enrolment began and we are seeing how it works in practice. Automatic enrolment is a blunt instrument, since everybody who meets the relevant tests is automatically enrolled. There is emerging evidence that we should consider refining and targeting, but it is impractical to make refinements by amending primary legislation every single time. A degree of flexibility is an integral part of future-proofing the policy. This clause provides that flexibility, with a power to exclude prescribed types of workers from the scope of automatic enrolment.

I should respond to the points made by the noble Baroness, Lady Sherlock, and the noble Lord, Lord McKenzie. The inclusion of all employers, whatever their size, is part of the broad consensus that continues to underpin support for automatic enrolment. That is Her Majesty’s Government’s position. I will come back to the specific points, which have rightly been raised, at some point.

We need to take the oddities out of the system and this clause enables us to do just that. Automatic enrolment is not always appropriate. Indeed, in extreme cases, pension saving could lead to an individual incurring a financial penalty. Until now we have relied on opt-out as a solution: an individual can opt out of automatic enrolment if pension saving is not right for them. However, a problem remains: inappropriate enrolments, opt-outs and refunds still cause work for employers and frustration for the individual. We need to consider how we can remove, or at least reduce, the administrative burden in cases where automatic enrolment serves no purpose.

The Government’s consultation on technical changes to automatic enrolment last year shows significant support from employers, pension providers and financial advisers for limited, carefully crafted exclusions which help individuals where automatic enrolment has no benefit or makes no sense. We are currently looking at the evidence from that consultation with a view to publishing proposals when a power is on the statute book. So far, the evidence suggests some clear examples. One straightforward example is that people with enhanced or fixed tax protection status could face a tax surcharge if they make any further contributions into a pension. As well as this, automatic enrolment may be illogical for leavers, since it may make no sense to force an employer to enrol a worker into a company pension scheme if they are serving out their notice.

Any exclusion is likely to be sensible and uncontroversial, which is why the Government suggest that a negative resolution in these circumstances is an appropriate use of Parliament’s time. In terms of the breadth of this power, we have been clear from the outset that the intention of this clause is not to exclude entire employment sectors from automatic enrolment or to carve out a particular size of employer; that is a specific statement in relation to this.

We know that undersaving is most prevalent among low-to-moderate earners, those who work for employers who have not provided an accessible pension scheme or those who do not pay into one. These are the core policy objectives on which the consensus was built and to which we are still committed. We are not considering exclusions to the automatic enrolment duty simply because some employers tell us automatic enrolment is an inconvenience. This is about exceptional situations where it makes sense to take a person outside the scope of the Bill, hence the exemption. Although I can understand the aim of the amendment, it is trying to stop the Government from doing something that we have no intention of doing. As noble Lords will know, it would not ultimately constrain future Governments in any event.

The noble Baroness, Lady Sherlock, mentioned Beecroft. We have already firmly rejected proposals to cut micro-employers out of auto-enrolment. Workers in those firms have as much right to save for their retirement as anyone else; we have been quite clear about that. Measures have been introduced, such as the timetabling for the introduction of auto-enrolment meaning that smaller businesses, with fewer than 50 workers, are not affected by the reforms during the lifetime of this Parliament. This provides an additional breathing space. That is how we are seeking to tackle this and intend to make allowance.

On the words “in some other way” in the clause, which have been the focus of remarks by noble Lords, the power is there to exclude people for whom pension savings make no sense. We want to be sure that we can deal with future situations in which exclusion is clearly justified. The drafting of this power enables us to react to unforeseen circumstances. That is critical, particularly as we are dealing with such a complex and technical area. On what happens next with the power to make exemptions, the Government’s intention is to publish draft regulations for consultation later this year.

The noble Lord, Lord McKenzie, asked whether this was about saving tax, or tax relief. We are looking at the use of this power. Saving money for the Treasury will not be one of the factors we consider. Although, of course, general consideration of the management of fiscal balances is sensible, the primary purpose here is to ensure that employers of all sizes, and employees, take the opportunity to engage with pensions and save for their retirement. Ultimately, in the long-term, that is in the best interests of the Treasury, the Department for Work and Pensions—indeed for all of government—and, chiefly, the people themselves.

I understand the thrust behind the amendment and that it is important to get those remarks on the record, but with those reassurances, I ask the noble Baroness, Lady Sherlock, to consider withdrawing it.

--- Later in debate ---

[Baroness Sherlock]

I have a question to add to that. I am grateful for the Minister’s explanation as to why the Government feel they need to have some flexibility to deal with circumstances as yet unknown, but I do not think that the Minister addressed what the problem is with the specific amendment I moved. After all, the amendment does not seek to prevent the Government from having those powers; it simply says that the Government may not make regulations in such a way as to exclude categories of business such as small and medium-sized businesses from auto-enrolment. What is the Government’s particular problem with this amendment?

[Lord Bates]

I will come to the noble Lord, Lord McKenzie, in the first instance. We have said that there are three categories, which he rightly referred to: tax protection, leavers and retirees. Those are the issues that we have identified. We are, of course, having a consultation. One of the challenges we invariably have is that we phrase a piece of legislation and make certain statements on the record in terms of the progress of that legislation through the House. We give certain assurances and then put something in to say, “This is to cover for unforeseen circumstances”, to which the legitimate question is: “What are those circumstances?”. The legitimate response to that has to be that they are unforeseen at present.

Responses to the consultation are currently being processed. They will be dealt with and published later this year and could reveal examples that we have not actually identified at present. This is a new policy and a new area and we therefore need to look at this. As I made my remarks about unforeseen circumstances, I gave examples of areas where it would be unacceptable to exclude people from the terms. We have rejected these exemptions and certainly would not want to introduce them. We have identified casual staff and teachers with second jobs, for instance, as being examples of people for whom we would not want this provision to apply. However, there will be further consultation on this issue and I ask noble Lords, if not quite to trust the Government, at least to accept that sufficient assurances have been put on the record. We recognise that there is broad consensus, but this needs to apply to everybody. However, this is a young policy in general terms and therefore flexibility is still required.

[Lord McKenzie of Luton]

I do not want to labour this for too long but it is important that it is clear. As regards the range of circumstances under consideration—in addition to the three of which we have already had notification—will we get any details, or at least the headlines of those circumstances, before we get to Report? On the three that have been identified, does the Minister accept that you could deal with those—particularly two of them—through specific legislation rather than giving a power to the Secretary of State? I come back to my point about the enhanced and fixed protection provisions for the lifetime allowance. Do the Government have it in mind to craft an exclusion for those circumstances? How does the Minister see that working?

[Lord Bates]

The short answer is that it is not easy. As the noble Lord will well know, given his experience as a distinguished Minister in the previous Government, it is not easy precisely to craft provision in those areas. We will seek to produce further examples by Report, following the responses received to the consultation. However, I can certainly assure the noble Lord that none of the responses has suggested that small employers should be excluded from the scheme. I know that is at the heart of the concern and, I hope, is at the heart of the reassurances which I have sought to give.

--- Later in debate ---

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Sherlock, for giving me the opportunity to update the Committee on all things NEST.

As noble Lords know, the National Employment Savings Trust was established to support automatic enrolment, providing access to a quality, low-cost scheme for a target market of low-to-moderate earners and smaller employers. We are now just over one year into automatic enrolment and NEST has around 800,000 members and 2,500 participating employers. Opt-out rates are low, with only 8% of individuals enrolled into NEST choosing not to save for their retirement. NEST is already very successfully doing what it is there for—supporting automatic enrolment.

However, we are approaching a peak in the staging profile. Between April and July this year, 27,000 medium-sized employers will start to enrol their workers, and from April 2015 more than 1 million small employers will do the same. We anticipate around 65% of these small and medium employers will use NEST. By the end of staging we expect NEST to have admitted around 750,000 employers and to be providing a pension saving vehicle for between 2 million and 4 million members.

This implementation challenge is what we need NEST to focus on. We need to ensure that the millions of people currently not saving sufficiently for retirement are provided with an opportunity to do so, and that NEST plays its part in starting to make pension saving the norm rather than the exception. For this reason, during the implementation of automatic enrolment, it is critical that NEST focuses on the key task of getting employers and workers on board without distraction. That is why we announced that we will be lifting the annual contribution limit and transfer restrictions currently placed on NEST by April 2017, when implementation for all existing employers is complete.

I am pleased to advise the Committee that, following an invitation from the European Commission, the Government submitted a formal notification earlier this month of their plans to lift these two constraints. The Commission will provide its response in due course. Once this has been received, the Government intend to consult on draft regulations and bring forward secondary legislation later this year to lift the constraints in 2017.

These regulations will provide certainty that beyond 2017 NEST will be on a similar footing to other providers and its members in the wider pensions market. It will enable NEST to support the successful implementation of automatic enrolment but will send a clear message to employers that these constraints will not have any bearing on them in the longer term, helping them to make an informed decision about automatic enrolment scheme choice for their members.

The Government are committed to ensuring that the introduction of automatic enrolment is a success. Effective implementation is important for building and maintaining consumer confidence in the reforms. Removing the annual contribution limit and transfer restrictions by April 2017 is the right approach.

The noble Baroness asked if the ban on transfers stopped employers from choosing NEST. NEST already has 800,000 members and 2,500 participating employers. Given that the overwhelming majority of employers that have staged so far are large employers, the evidence suggests that the constraints have not unduly deterred employers from choosing NEST.

This is an operational capacity issue for NEST. The restrictions on transfers in and out of NEST were designed to enable NEST to focus on its primary objective of supporting the introduction of automatic enrolment. Between April and July this year, an anticipated 10,000 to 15,000 medium-sized employers will start to use NEST to meet their automatic enrolment duty. It will not stop there, with more than 1 million small employers starting to enrol their workers from 2015.

I hope that those comments and updates, and the responses to the questions that the noble Baroness rightly raised, will enable the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I was not going to intervene in this debate but I must challenge something the Minister said. It is as though the ban on transfers and the contribution cap were originally put in place because otherwise there would be a distraction from the fundamental purpose of NEST. That was absolutely not the position. There was a lot of detailed discussion. My noble friend Lady Drake would have been involved in that.

When the legislation was introduced, the imperative was to try to get a consensus of employers, trade unions and the providers, to make them feel comfortable with auto-enrolment. That certainly means that the Government of the day conceded things to get that consensus, so that the thing could move forward. However, those restrictions were not put in place because NEST would be distracted from the very important task that it was given without them.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Bates

Wednesday 15th January 2014 Grand Committee

[Lord Bates]

The noble Baroness says they do not agree with it, but when the ABI actually carried out a survey and asked people which one they preferred, 58% of consumers said they preferred pot follow member.

[Lord McKenzie of Luton]

Did the noble Lord not say a moment ago that perhaps the aggregator model was initially slightly more difficult to understand than the pot-follows-member model? It is not surprising, therefore, that initially, some of these surveys may have shown less support for that model.

[Lord Bates]

The noble Lord makes my point: it is more difficult to understand. What are we trying to do? We are trying to make it simpler. We are trying to get people to be able to understand it. That is one of the reasons why it appeals to people. They will only ever have one pension pot; under the other scheme they may have several; they will be able to keep track of that and follow it through. Anyway, we can discuss and debate that, but in all of the consultation that was undertaken, it was clear that there was a strong view in favour—not only from the respondents of the consultation, but also in the opinion polls that followed from the industry.

The noble Lord, Lord Turner, raised the important issue that pot follows member fails to deal with high charges. We strongly agree that driving up scheme quality is of paramount importance. This is an issue wider than just a scheme used for transfers in the aggregator model, but actually should be something that applies to all, to set minimum standards across a broader range of schemes. Therefore, in doing so, it would benefit not just those affected by these pension pot transfers, but also the existing members of those schemes.

The noble Lord, Lord Turner, said he did not accept the pot size comparisons that were being put forward. He spoke about the £2,000 limit: why was it £2,000? We actually consulted not just on £10,000: we consulted on £20,000, £10,000, £5,000, all the way down to £2,000 and even £1,000, which is similar to the amount that is currently used in the Australian model, which is often cited in this context. In all of those different levels, pot follows member came out ahead of the aggregator in terms of individual responses.

Welfare Benefits Up-rating Bill

Debate between Lord McKenzie of Luton and Lord Bates

Tuesday 5th March 2013 Lords Chamber

[Lord McKenzie of Luton]

Does the noble Lord accept that the Child Poverty Act was not looking at just the metrics of the targets? Section 9(2)(b) talks about ensuring that,

“as far as possible that children in the United Kingdom do not experience socio-economic disadvantage”.

We had big debates about that. The Act requires strategies for,

“the promotion and facilitation of the employment of parents or of the development of the skills of parents … the provision of financial support for children and parents … the provision of information, advice and assistance to parents and the promotion of parenting skills … physical and mental health, education, childcare and social services, and … housing, the built or natural environment”.

It was not looking at just those targets; there is a whole range of strategies that this Government should be adopting if they are signing up to this Act.

[Lord Bates]

That is a more reflective point; it is just not exactly what the amendment before us today actually refers to. It refers to the financial measures of “absolute low income”. Is that the one that is based on 1998-99 and uprated for inflation in a direct line?

My point is that there is an absolute crying need, of which we are all absolutely aware. There is child poverty out there and we need to strain every sinew to ensure that we tackle it. Also, we have no doubt that on the current measure there is no question that it is going to increase. The Office for Budget Responsibility’s figures forecast that as the recovery gets under way, private sector earnings will increase by 4.6% per annum. It does not take a great mathematical mind—which is fortunate for me—to figure out that with what we are dealing with today, as well as the likely increase in private sector incomes, we are going to see the gap rising and almost an inversion of what has happened over the past few years happening in the future. But there are more indicators that need to be examined to give us a holistic picture and to ensure that we target scarce resources where they are needed most.

Welfare Benefits Up-rating Bill

Debate between Lord McKenzie of Luton and Lord Bates

Monday 25th February 2013 Lords Chamber

[Lord Bates]

My Lords, I wish to comment on the amendment, in which I find a lot to support, particularly the idea of a review. Before I do so, I owe the noble Lord, Lord McKenzie, an apology because in my earlier intervention I made a point about higher-rate tax and said that it had decreased, when of course it had increased. I apologise for impugning his tax-raising credentials. It was a low blow that was not intended. I take this opportunity to correct the record and hope that he might accept my apology.

This is an interesting amendment to consider because we are dealing with a significant crisis. There is no doubt that housing benefit itself needs to be focused on: how it has increased from roughly £11 billion, circa 1997, to a predicted £25 billion in 2015. Clearly, no one could sit in the Treasury, not have a view on that trend and not say that it needs to be looked at carefully.

My second point is that private rents have been increasing at an alarming rate when compared with the rest of the housing market. One needs to consider the increases, which, according to the National Housing Federation, have been something like 35% over the past three years. Over that same period, we have seen an 86% increase in the number of those claiming housing benefit, from 485,000 to 905,000. This is happening at a time when, outside certain sections of the London property market, house prices are actually falling. This is happening when interest rates are at historically low levels, and mortgage rates are at levels whereby 1.99%, two-year fixed rates are being offered. There are very low mortgage rates while house prices are falling, yet at the same time private rents are increasing by not only the rate of inflation but in many cases by twice the rate of inflation. It does not take a great economist—and I note that there are some in the Chamber—to work out that there might be some correlation between housing benefit and a potential inflationary effect on the private sector. I therefore understand that that is one of the issues that my noble friends would look at with some care.

I also note that one of the solutions to the problem is to ensure that there is a greater housing supply through housebuilding. This is an area on which I would pitch to my honourable friend in his pre-Budget purdah and ask him to reflect on how additional funds could be made available. I do not say that the Government have done nothing in that regard. They have put up £10 billion in guaranteed loans to try to stimulate the market, and they have introduced shared ownership schemes through FirstBuy and NewBuy to try and increase house purchase. That is an important element. We do not want, as a society and for the health of our society, to divert people into a life in private rented housing. We want to encourage people to have an ownership stake in society and to own their own home. For them to do that, there need to be enough homes coming on to the market.

There is a competition because, as people are coming on to the market and wanting to own their own home, investors who are experiencing low rates of return in other asset classes are finding, according to Rightmove, that there is a yield of 5.8% on private rented properties—the figure is 6.5% in London—which represents extraordinarily good value in the present market. Capital is therefore flowing into the buy-to-let market, rather than the build-to-buy market. There needs to be some step back from this approach and one needs to ask what is actually happening and how it all connects with changes in benefits.

We are, I assume, taking an approach whereby we believe that capping the local housing allowance and housing benefit will lead to a slowing down of the increases in rents. The noble Baroness is shaking her head, but that is the assumption. We have certainly seen how rents have increased when housing benefit and local housing allowance have increased. Perhaps we should test this out, but that is difficult because we are talking about affecting lots of very vulnerable people. However, there is a case to be looked at. Some annual or periodic review of how this is working and impacting on the housing market would be welcome, and I encourage that part of the amendment. I am delighted to note that my noble friend Lord Freud had been supportive of the idea, and I very much hope that my colleagues on the Front Bench will also be supportive.

Finally, perhaps I may take this opportunity to raise one further question about the way in which benefits are to be paid to the tenant rather than to the landlord. I know that various demonstration projects are undergoing trial in Edinburgh, Oxford, Shropshire, Southwark and Wakefield involving direct payment, and that they have some time to run, but I should be grateful if my noble friend in her response can provide some assessment of how they are going. There are some concerns that paying benefits directly to tenants, particularly when that may represent the largest component of their income, might put them in an invidious position, and some people might get into greater debt as a result. I know that such schemes are being trialled and I should be grateful for some comment from my noble friend on the Front Bench in her winding-up speech.

[Lord McKenzie of Luton]

My Lords, this has been a good but short debate, as any debate around amendments of my noble friend Lady Hollis and the noble Lord, Lord Best, on housing would be. You cannot do better than that in your Lordships’ House. I am grateful to the noble Lord, Lord Bates, for his earlier comments. I thought that he had got it the wrong way round but was not quite sure whether I had misheard. I think that my problem is that I am not confident to challenge him; however, I am grateful for his clarification.

My noble friend and the noble Lord, Lord Best, are on the same page on this matter and we are happy to support the amendment, which calls for a review of housing welfare benefit, especially regarding the affordability of private sector housing. My noble friend and the noble Lord made a particularly powerful case in their analysis of the consequences of a growing divergence between levels of private sector rents and levels of support. We know and recognise why there is a growing divergence—the 30th percentile, the individual cap, CPI uprating, and now the proposed 1% cap. It will be made worse by direct payments when universal credit comes in. There are certainly causes of the pressure on rents, with growing numbers of households and insufficient new builds, but no evidence—indeed, quite the reverse—that the restrictions on housing support are driving rents in the opposite direction. It remains to be seen, as the noble Lord, Lord Bates, suggested, whether there will be any slowing down with the further ratcheting down of housing support.

Welfare Benefits Up-rating Bill

Debate between Lord McKenzie of Luton and Lord Bates

Monday 25th February 2013 Lords Chamber

[Lord Bates]

I, too, was not intending to speak on this amendment, but I was spurred to by my noble friend Lord Forsyth of Drumlean. I rise to add to some of the points and to reinforce some of the questions that he has about this. I followed this debate quite closely at Second Reading, and I thought that the position then argued by the noble Lord, Lord McKenzie of Luton, was that the Opposition opposed the 2013-14 and 2014-15 limits but had not yet reached a position on 2015-16. Presumably by supporting this amendment, they are now making the position that they do not agree and would therefore reverse the policy as it affects 2015-16, which is £1.9 billion. I may have got that wrong, and I am very happy to sit down if the noble Lord wants to intervene to correct me.

[Lord McKenzie of Luton]

I shall clarify for the noble Lord that we made our position clear in respect of 2013-14, which is not in the Bill but is dealt with by regulations in the normal way. We made it clear that we will make no tax or spending commitments in respect of the next Parliament, which would include the latter part of 2015-16. As for 2014-15, we think that removing this cap would enable the normal process to take place so that there can be an assessment in the normal course about what is happening to inflation and the state of the economy in that year. I hope that has clarified the position. That has not changed since we debated this at Second Reading.

[Lord Bates]

The noble Lord is saying that the Official Opposition do not intend to make any pledges, which is interesting because I thought I heard last week that there was a proposal for a mansion tax and that that would be funded by other means. I thought that was a specific spending commitment beyond 2015-16.

My second point picks up on one from the noble Baroness, Lady Meacher, who made a thoughtful contribution. We overwhelmingly agree that the most effective way to alleviate poverty and raise standards is to create jobs. I would have thought that there would be some recognition that the Government’s record on that has been quite reasonable. We would of course like it to be very much better, but contrary to some other countries that are wrestling with the same problems our unemployment rate continues to fall. We now have the highest level of private sector employment in our history and a million new private sector jobs since the last election. That suggests that moves to reform taxation and stimulate the economy are beginning to have some effect, and that they are the best way of tackling this.

We have an Urgent Question coming up on the rating agency decision: the noble Lord, Lord McKenzie, and the noble Baroness, Lady Meacher, referred to this. I was reading through the decision and thinking of making a contribution to the Urgent Question, which I will not now do having secured the Floor in this debate. Moody’s statement,

“explains that the UK’s creditworthiness remains extremely high … because of the country’s significant credit strengths”,

chief among which are,

“a strong track record of fiscal consolidation and a robust institutional structure”.

That is quite interesting. In fact, going beyond that, we are again warned about what could happen to the country’s inflation and the cost of borrowing if the country were to be downgraded again.

Further down, on what could move the rating up or down, Moody’s statement says that,

“downward pressure on the rating could arise if government policies were unable to stabilise and begin to ease the UK’s debt burden during the multi-year fiscal consolidation programme”.

So there is a case for fiscal consolidation. There needs to be a recognition that the Government’s policies of raising tax thresholds and increasing employment are beginning to have some effect.

Notwithstanding that, I come to a point of agreement, which I made at Second Reading: no one on any side of the House is cheering on this measure. It is an economic necessity. It is certainly not something that anyone takes pleasure in.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, perhaps I may wind up on behalf of my noble friend, who moved Amendment 1 on my behalf. I thank the Minister for his range of responses. I emphasise that, yes, we believe the amendment would negate the Bill, but it would not prevent the Government doing what they wanted to, given a chance, over a three-year period. However, we believe that it is wrong to lock in a real-terms cut for three years. Effectively, it is for two years, given that the first year is by way of regulation.

On issues of tax, the Minister, in response to the Second Reading debate, said that a 50% tax rate would not garner the revenue we believed because people would order their affairs. Ordering their affairs, as set out in some detail in the HMRC publication that looked at this issue, would involve switching income from one year to another. It is quite possible that, as we speak and draw to the end of the current tax year and move towards, possibly, a 45% tax year, a great deal of income will shift from this year into next year. Will the Minister say whether he thinks this is okay and acquiesces with it, or whether it is a matter that the Government should address in some form? If you simply sit back, clever and well resourced people will reduce their tax liabilities as fully as they can. However, it does not inevitably have to be that way, particularly when the people who will pick up the burden of that avoidance are at the very low end of the income scale.

[Lord Bates]

I take the argument that the noble Lord is making about 50p down to 45p. I am puzzled therefore as to why, during the entire period of the previous Government, who were in power from May 1997 until April 2010, the top rate was 50p. It reduced to 45p only on 6 April 2010. If it was an overriding cause of concern and a belief of the Government of that time, in which he served as a distinguished Minister, surely they would have kept the rate at that level and not proposed reducing it.

[Lord McKenzie of Luton]

We are addressing the policies of this Government. We can spend all our time debating what previous Governments have done but we are addressing this Government’s determination to raise the revenue that they can from a 50% rate, rather than give what is a huge tax cut to a minority of people in our country at a time when people at the other end of the income scale are being asked to bear a real additional burden. That is what we are complaining about and we believe that the Government can and should do something about it.

There have been a range of powerful contributions to this debate. I agree entirely with my noble friends Lord Bach and Lady Hollis about this collection of things that are going on, particularly at the moment. New benefits, new structures and new payment details are being introduced in circumstances in which it is difficult for people to access good advice, to get justice when they wish to challenge, or even to understand the system with which they are faced.

The noble Lord, Lord Bates, referred to fiscal consolidation. Yes, we all agree about fiscal consolidation: the issue is how you go about it. We all agree about the importance of work and getting people into work, but it is how you go about it. The problem is that the Government have not produced the goods. Every time George Osborne presents a Budget or an Autumn Statement, the OBR revises growth downwards. Indeed, the latest GDP figures show that there has been no growth this year. The issue is not about whether we believe growth is the right way forward; it is about how you get it—and this Government have not delivered on that.

As to their impact on benefit spending, the Government’s failure to get Britain back to work is sending the social security bill up by something like £13.6 billion more than expected. Long-term unemployment is up by 55.7% this year. That is a manifestation of government failure in getting people into work and on growth in the economy. Borrowing has risen by 10% so far this year and it looks as though the Chancellor will miss his target to get the national debt falling by 2015.

On our record on benefits, I would say to the noble Lord, Lord Forsyth, that real-terms expenditure on out-of-work benefits fell by £7.45 billion under the previous Labour Government between 1996-97 and 2009-10, while real spending on out-of-work benefits in 2006, at something like £38 billion, was at its lowest point in 15 years. You do not have to take my word for Labour’s record on benefits. An analysis was made of the Labour Government’s record on welfare reform and it was found that they had made “strong progress” in their welfare-to-work agenda. Policies such as Welfare to Work, the New Deal and Jobcentre Plus were all a success. It was the noble Lord, Lord Freud, who came to that judgment.