Lords Hansard text for 22 Feb 200722 Feb 2007 (pt 0014)

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For example, is differential inflation considered? As we all know, inflation affects different groups of claimants, or customers—whatever we like to call them—differently. Is that looked at annually carefully before the final benefit uprating is decided? The UNICEF report was obviously too late to be considered for this year’s uprating, because it was only released in the past week or so, but are such external reports considered year by year?

I say that particularly because, as the House will know, the Treasury extracted, for some daft reason that I do not understand, important benefits, such as child benefit, from the grasp of the DWP and thereby, at a stroke, took them out of the purview of the Social Security Advisory Committee. That committee is a confidence-building measure. It looks at these things from an independent and very expert point of view and can give an independent assessment of what the Government are doing on benefits administered by the Department for Work and Pensions.

None of the benefits that the Minister has brought before the House this afternoon has been subject to that rigorous scrutiny. That is a worrying fact that we need to bear in mind. The duty on Treasury Ministers to give an explanation and detailed background when dealing with such benefits is perhaps greater than it is for the social security uprating order coming next week, which will be presented by DWP Ministers. Finally, on whether the process considers different factors, the whole question of fiscal drag has a profound effect over the longer term on how benefits are deployed and how their relative value changes over time. I hope that the process before the laying of the orders has also taken that into account.

There are a couple of technical things that I genuinely do not understand. I cannot understand why the guardian's allowance order that has been

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laid is necessary. It is necessary only because the guardian's allowance is in the wrong part of an Act of Parliament. It used to be a contributory benefit. For the life of me, I cannot see why it is necessary to single out this benefit. Actually, I think I know that the reason is that it used to be a contributory benefit and so it has to be uprated especially by itself. According to the order, the cost is negligible. The important point was made by the noble Lord, Lord Taylor, that the simplification of benefits unit, if it is doing anything, should be finding ways to move the guardian's allowance from one part of a previous statute to another. I shall make him an offer, which I hope he thinks is generous. The next time a social security Bill comes through this House, I will move an amendment myself to relocate the benefit in the statutory process. Then he will not need to move these orders in future. I cannot say fairer than that; I am doing the Minister’s job for him. If it is a negligible amount of money and an historic anomaly, simply systematically going on because it has aye been, as they say in Scotland, is not a big enough justification for bringing it before the House. Perhaps the Minister will look at that.

I absolutely concur with what the noble Lord, Lord Taylor, said about child benefit. I absolutely accept that the Government have done a huge amount to increase child benefit levels although, as the noble Lord, Lord Taylor, reminded the House, they missed the targets just recently. I bet a monkey to a mousetrap that they will miss the 2010 targets by a much bigger amount unless these uprating orders for child benefit do not improve in forthcoming Budgets. You do not need to be an economist to do the extrapolation. Child benefit must reflect the Government’s own policy intentions and ambitions. Of course it has been uprated by prices. That is great, but it is not enough to meet the Government’s own targets. The Government are running out of time to meet the 2010 targets because these amounts of money take time to feed through and make a difference to the children in families who are in poverty. It is acknowledged that this is an improvement, but it is not good enough in terms of the Government’s own measures. Therefore, the House needs to ask the Government to think about that again.

On the social security contributions order, I do not know, and I cannot understand, why provision is made for a 2 per cent Treasury grant. The Minister said that it was a kind of safety measure and that we needed 2 per cent of the benefit spend just in case we needed it. That is great, except that the Government Actuary report that accompanies the orders makes the apposite point that,

The Government Actuary advises the Government to keep 16 per cent of benefit spend as a safety measure. I forget what the actual percentage of the benefit spend is now, but the Government Actuary says that we do not need this money. We have always had this provision for a government grant of 2 per cent, but if the Government Actuary is telling us that we do not need this money until 2012, why do we need this

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paragraph at all? It might be money for a rainy day. I do not know, but 2 per cent of the benefit spend is a huge amount of money. I cannot remember the last time it was used. There is a table at the back of the Government Actuary report, which noble Lords might like to look at, which shows that the fund is in substantial balance. Indeed, in 2011-12, there will be an end-of-year balance of 91.8 per cent of the benefit spend. The Minister does not need his 2 per cent. If he does not need it, he should not have it in his order.

I have two other quick points to make. Again, I concur with the important points made by the noble Lord, Lord Taylor, that the administration of tax credits needs a serious amount of work. I do not know how the maladministration affects the ability to keep the accounts properly in order year on year, but it is completely incoherent to have the child element of the child tax credit increased by earnings at the same time as we freeze the family element of the tax credit system. There is no rhyme or reason to this, and it makes the complexity much worse if we use differential rates of benefit increase in a way that simply baffles me. I can see why the Government did this at the beginning, but I see no justification for their continuing to do so.

Finally, the orders are welcome and are important to the families that they serve. I recognise the work that the Government have been doing. Perhaps the Minister should go back to the department and look at the value of benefits as a percentage of GDP or any other relative merit measure. These have been changing over the past 25 years. On looking at such periods, some of these benefits are eroding in value substantially, which is often hidden by the fact that we look at these uprating orders year by year. You do not see it happening year by year, but if you look over a period, the evidence is staring Ministers in the face. If we do not do more, not only will the Government miss their targets, families who are in abject poverty—there still are some in this country—will continue to suffer because these upratings are not sufficient for the purpose.

Lord Davies of Oldham: My Lords, I am grateful to both noble Lords who have contributed to this interesting debate. I appreciate that both welcomed the orders while presenting some limited criticism of them. Let me emphasise to the noble Lord, Lord Taylor, that I hear him when he talks about keeping up with inflation. I do not think I emphasised that we are talking about inflation under this Government: low levels about which the preceding Administration would have only dreamt. He will recognise, therefore, that these adjustments are taking place against a background of considerable economic stability, which, after all, is very important for everyone—as much for those who are less well off as for any other.

The noble Lord emphasised the problems of the overpayment of tax credits, and he is right. We recognise that we have considerable work to do to refine and improve the system, and we have already made considerable improvements. Tax credits are a very important dimension of our welfare policy. More low- and moderate-income families receive support

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through tax credits than in any previous system of income-related financial support. Although I will of course take on board the proper anxieties expressed by the Opposition about the operation of the system, I emphasise that we have made considerable progress, particularly in tackling child poverty. The noble Lord, Lord Taylor, upbraided me on that as well.

With slightly more generosity, the noble Lord, Lord Kirkwood, also mentioned that we missed the target. We narrowly missed the target against a background of, as is known, a very substantial inheritance of child poverty to tackle. In the 1980s and early 1990s child poverty doubled in this country, but in 2004-05, despite having narrowly missed this target, 700,000 children were lifted out of relative poverty. We want to hit targets, and I hear what the noble Lord, Lord Kirkwood, says about his gloom with regard to the more distant target. He can indulge in gloom if he likes—economists, after all, made their reputation indulging in gloom—but the Government are committed to hitting that target and are already making substantial progress towards it.

I want to reassure the noble Lord on the overall position. I think he was asking me whether the Government take into account broader issues that may crop up which impact on low-income families and tax credits. Would a review have sufficient breadth? I understand what he says about the technicalities of the narrowly based review, but he will understand that no intelligent Government with the kind of priorities that we have in tackling child poverty would do anything other than look very closely at a report like that of UNICEF, to which he made reference, which identifies the tasks to be undertaken. While there are certain dated figures in the report, points are also made that show just how far this country had to come to emerge from the position that obtained before we came to office and the length of time it will necessarily take us to effect an amelioration. However, I want to assure the noble Lord that the policy is evolving within the context of a real appreciation of the broad objectives that we have set ourselves and the priorities we have identified.

On the detailed points raised by the noble Lord, Lord Taylor, on overpayments, there have been difficulties but the improvement has been considerable. We did much better in 2004-05 than in the preceding years, with overpayments running around a fifth lower over that period, so we are moving rapidly in the right direction. Furthermore, the measures announced in the Pre-Budget Report 2005 will reduce overpayments by about a third when fully implemented. It is not an easy task. Overpayments made to the least well-off among our citizens present real problems regarding recovery, and we have to approach the issue with understanding and the recognition that we must not create hardship through a failure of the system. That is why there are costs involved.

I want to assure the House that we are making significant progress in that area, as we are in tackling fraudulent claims. The noble Lord knows that there have been significant issues on fraud and overpayments. It is of course the Government’s

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responsibility to keep a careful watch over taxpayers’ money, and we are confident that we have got the measure of this development, one which has cost the nation and which needs to be remedied. I do not have precise figures on the improvements to hand, but we think that they will show that the very significant levels of fraud which occurred earlier have been sharply reduced. Indeed, I am confident about my statement in those terms.

As is the wont of the Official Opposition, the noble Lord again asked me about inflation measurements, a matter we have discussed in the House recently. He will recognise that the inflation index we use puts us into a position of direct international comparison and is an appropriate and proper measure of inflation. However, both he and the noble Lord, Lord Kirkwood, emphasised that there are different inflation rates for different people. As he knows, the Office for National Statistics is working on this issue as a guide to policy, but that is not the same concept as relating benefits directly to inflation, which needs a clear, accurate and definitive measure that we will continue to use. Obviously the Government will take into account, in their aim of eliminating child poverty, those factors where the inflation rate may be higher for certain categories and therefore need to be taken into account. However, I must say that those factors will vary a great deal between families. There is no easy measurement of those figures and we would be looking for fool’s gold if we thought that there was. That is why, although I am chided by the Official Opposition, I think I would be on fairly safe ground in saying that they are unlikely to produce a policy initiative indicating that they will have variable rates of inflation for a whole range of people entitled to benefits from the state. I am therefore not able to give a great deal of reassurance on that point.

The noble Lord also asked why the guardian’s allowance is lower than child benefit. The guardian’s allowance is not a substitute for child benefit and tax credits but is paid in addition to those benefits. It gives support to all families with children and recognises that a person is taking responsibility for a child whose parents have died and has additional costs. There is no obvious reason why it should be exactly the same as any other benefit; it is an additional concept. So that is the basis of that.

The noble Lord, Lord Kirkwood, suggested that the best way to get the inflation problem out of the way is to base all these benefits on earnings. He said that there is a comparative loss if earnings are rising faster than prices and people receive these credits only on the basis of prices. I shall not accuse the Liberals of going quite that far at this stage but the noble Lord should be careful about how much he chides me on this matter. I understand what he says. We have had this debate in regard to pensions and he will know how constructive the Government are being in the Pensions Bill which is currently before the House of Commons. He will have to be satisfied with that as an earnest of the Government’s intent at present.

I am conscious that I have been asked for a number of very precise details which I may have inadvertently

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glossed over, not through intent but through an inability to master entirely the detail, particularly when I know that the noble Lord, Lord Kirkwood, has a long history of work in this area which we all respect. This is probably true of the noble Lord, Lord Taylor, as well, although I know his work rather less well. My history is painfully thin and therefore, on this occasion, I must indicate to the noble Lord, Lord Kirkwood, that there are areas on the path he invites me to go down which I must resist lest I fall into the morass.

At one stage the noble Lord suggested a wager on the child poverty target. He said that he would bet a monkey to a mousetrap. My response on behalf of the Government is that we are not going to take that wager on, because neither side seems to be particularly advantageous to us.