Universal Credit (EAC Report)

Lord Bridges of Headley Excerpts

Wednesday 23rd March 2022 Grand Committee

[Lord Bridges of Headley (Con)]

My Lords, I start by congratulating my noble friend Lord Forsyth and the committee on their excellent report. I had zero hand in it and agree with it entirely. It is always difficult to follow my noble friend Lord Forsyth on occasions such as this, because I feel that I am repeating everything he has said—he is so eloquent at summing up reports.

I am not going to go through the entire list, but it strikes me as an incredibly comprehensive critique of how universal credit should be improved. Reading the Government’s response, I too was very disappointed by its tone and substance—and, like the noble Lord, Lord Shipley, I was surprised by the Government’s surprise.

Something more fundamental than this strikes me. As we just saw in the Chamber, this entire area of policy, especially the issue of the £20, is uniting Members on all sides of the House. This area of policy needs a fundamental reassessment, for reasons that I will come on to, but especially for the reasons the report sets out: the five-week wait for the first payment; fixing the level of awards for three months; rebalancing the sanctions regime; the abuse of universal credit to recover debt, as the right reverend Prelate mentioned; and, perhaps most important of all, making the £20 a week uplift permanent. All these recommendations seem to make perfectly eminent sense—and that was the case when the report was published.

Let us remember, as the noble Lord, Lord Shipley, said, that the world is now fundamentally different. Back then we were in the first phase of the crisis called Covid and inflation was still seen as under lock and key, or thereabouts. Oil was at $40 a barrel. Today, we have heard that prices are rising at the fastest rate for 30 years and oil is at $120 a barrel. It really is the case that the past is a foreign country; we did things differently there.

As we look ahead, we see energy bills rising by 50%-plus in April alone. As we heard in today’s Statement, households are facing the biggest fall in disposable income per person since the 1950s. Meanwhile, the backdrop to this is that the tax burden is on track to be at its highest since the 1950s, while debt is at its highest level since the 1960s. It is worth noting, as this is the backdrop to all the policies that we are addressing, what that means. As we heard in today’s Statement, interest payments are set to hit £83 billion in the next fiscal year. That is a record level—more than is spent on schools, the Home Office and the MoJ combined.

So wherever I look on the economic dashboard, I see the lights flashing red. As the noble Baroness, Lady Lister, and the noble Lord, Lord Shipley, said, this is an emergency. At times in politics we are apt to use the word “crisis” in a slightly flippant way. But this is a crisis, and it really is one for those who are on the lowest incomes. I think all of us here share a sense of responsibility and a sense of wishing to take real and urgent action to address that.

As the OBR warns today, and as my noble friend pointed out, benefits are going up by 3.1% in April, but inflation is set to average at 8% in 2022-23 as a whole. Before today’s Statement, low-income households face a real-terms cut in income just six months after the £20 per week cut to universal credit. Let us remind ourselves what all this amounts to. The Child Poverty Action Group’s analysis shows that families’ universal credit will fall in value by £570 per year on average. The Joseph Rowntree Foundation has calculated that 400,000 people could be pulled into poverty by this real-terms cut to benefits. Families with children in poverty will face £35 per month in extra energy costs even after the Government’s council tax rebate scheme is factored in.

That is before we get to other issues that we should be concerned about. One that I am very concerned about is the rising cost of food. Wheat prices are already up 40% this year alone. That is before we get to the threat of another hike in energy bills in October. Citizens Advice forecasts that 14 million households will struggle with their bills. That is one in four adults. Let us put all that together: we cannot continue with business as usual.

I absolutely applaud some of the measures taken today but, as the document from the OBR makes clear, total tax and benefit changes in today’s Statement offset only about a third of the overall decline in real per person disposable incomes. That assumes that this crisis does not deepen further. Although I welcome some of the measures in today’s Statement, I cannot help but think that we are giving with one hand and taking back with the other, creating a piecemeal system that is extremely confusing.

I ask a simple question, building on what others have said: why are the Government not taking the simpler and more straightforward approach of using the welfare system and reforming it to help those on low incomes and committing to the policies set out in this report? I know that the Minister will argue that the increase in work allowance and the cut in taper are an effective tax cut. We heard that from the Chancellor on Sunday. But what does she say to the Resolution Foundation, whose analysis shows that around three-quarters of families—that is 3.6 million—on universal credit in 2022-23 will be worse off under the new regime than they would have been absent the last Budget changes but if the £20 per week uplift had been retained? That is question one.

Secondly, picking up on what my noble friend said, what does the Minister say to the finding that the overall marginal effective tax rate for universal credit families earning over the work allowance will be 70% in 2022-23? This is the same rate as experienced by families receiving tax credits from 2003-04 to 2010-11. How does this 70% marginal tax rate square with the Government’s assertion that they will ensure that “work always pays”?

Finally, as I said in the Chamber earlier, I fear that we have lost sight of one of the best ways to help those on low incomes, which is to provide them with jobs and job security. I have to repeat what I said in the Chamber: the rise in national insurance is absolutely a hammer-blow to many of the people we are talking about whom we wish to help and the businesses that employ them. Of course I welcome today’s announcement regarding thresholds and likewise I welcome the employment allowance, but I note that today the Institute of Directors has commented that this measure is marginal for employers.

We have to consider what the national insurance rise will do, not just for employees but for employers. Let us consider the sectors that will be worst hit, which are the ones that have been worst hit by Covid: distribution, transport, hotels and restaurants. How will this measure help them create jobs? How does it help them encourage investment? How does it make them more competitive? How does it help them to keep their costs low? I hate and dislike everything about this tax rise. It is taking us in the wrong direction. But the key point that is relevant to this debate is that it exhibits a lack of strategy and a lack of principle that bedevils this Government. It does nothing to help those on low incomes who need that job security.

The question for my noble friend the Minister, who I fear might get a bit of a tough time this afternoon, but I know she can take it, is whether the Government are really doing enough to help those on low incomes. Are they really rising to the moment? Do they still see this as business as usual or are they treating it as the emergency that it really is?