Welfare Reform Bill

My Lords, I do not think that a single Member of this Chamber could stand up and say they truly believe that the welfare system is working. Personally, over the course of the past four years, I have been struck time and again by the sheer scale of the system, and therein the task we face bringing forth these reforms. Today’s benefits balance sheet tells a story of unfairness, dependency, and waste. There are nearly 5 million people on out-of-work benefits. In 2010-11, the Government spent £201 billion on welfare and pension payments, compared to £38 billion on defence, £91 billion on education and £121 billion on health. Within that we spend £22 billion on the key out-of-work benefits and the same again on housing benefit. Working-age welfare spending has increased by over 40 per cent over the past decade, Housing benefit spend is up almost 50 per cent. Of the 2.6 million people claiming incapacity benefits, over half have been on benefit for at least five years, and a third have been on benefit for 10 years or more. Spending on welfare has been allowed to get out of control. This Government have taken some tough decisions to restore affordability to the benefits budgets for both now and the future. Of course, welfare is about more than just numbers. Ineffective management of the benefits system has not just led to ever-increasing spending. It has also affected people’s lives. So, there are people who want to work but find they are better off on benefits, people who want to work but do not get the specialist support they need, and people who want to work but are actually hindered from doing so by the current rules. In the mean time it is the poorest and most vulnerable who suffer. Welfare reform is first and foremost about refocusing the resources we have to help the people who need it most. This Bill contains a number of measures to address specific problems within the welfare system, to end benefit dependency and redress the balance by restoring fairness and affordability. These measures lay the groundwork for the main purpose of this Bill, the creation of universal credit, the most radical reform of the welfare system since its invention. With the creation of universal credit this Bill does not just allow for the development of a new benefit, it creates the conditions for attitudinal and behavioural change. It bridges the gulf that has opened up between unemployment and work, and delivers a benefits system that is about people not process, one that is flexible and responsive. As we debate this Bill today and in Committee over the coming weeks, we may disagree on the detail, but we must all agree on the need for reform. I know that noble Lords have a great deal of interest in these reforms. Many have been to briefing sessions on specific policies contained within this Bill and I hope this can continue throughout the Committee stage. I shall also be publishing a great deal of detailed information provided for the Committee stage in the other place. This will include one-page notes relating to every regulation-making power in the Bill, illustrative draft regulations for some areas, and policy briefing notes. Some of these, as noble Lords may have seen, were published only yesterday. To inform our discussions, I also expect to publish updated impact assessments to reflect various announcements that have been made during the course of the Bill’s passage through Parliament. Following further work my department has done, and the helpful report from the Delegated Powers and Regulatory Reform Committee, I am planning to bring a number of technical amendments during the Committee stage. I will ensure that noble Lords are made aware of these in good time to prepare for the debate. Today, I wish to set out for you some of the principles behind our approach and the rationale for some of the key measures included in this Bill. At the heart of our reforms, indeed at the heart of this Bill, is the creation of universal credit. This will be a single income replacement benefit for working-age adults. It will be simple to understand and access, and crucially it will bring together in and out of work support, simplifying the current system of benefit payments and tax credits into a single payment for those out of work or on low pay. Universal credit will provide a more consistent system of support. For example, under universal credit, people remain registered with the system for two years after their claim has ended. So, someone can get a full time job and leave universal credit completely, but if they lose their job or perhaps cannot work for a period because of a health condition, they will be able to start payments again almost instantly, ensuring that they do not have to wait for vital support. Universal credit will also provide a more responsive system of support, because as part of these reforms we are developing a real-time tax and benefit system. Access to real time information means that we can deliver a more responsive system based on actual earnings, making the transition between benefits and work much easier. By basing support on financial need, not crude measures of employment status, we will remove some of the barriers preventing people returning to work and will provide the security of a minimum income while retaining and in fact, for many, restoring the financial incentive to work. Real-time information means that universal credit payments can be gradually reduced as earnings increase. Even for those at the bottom end of the pay scale looking to take on extra hours or a modestly paid job, there will be real financial gain. This is an important point; under the current benefits system some people can experience an immediate and almost total loss of benefits for working just a couple of extra hours a week. Under the old system, some households could lose as much as 96 pence for every extra pound they earned. Universal credit reduces this to around 76 pence for modest earners and 65 pence for low earners. This directly improves work incentives for around 700,000 people by putting extra money in their pockets if they do extra work. The broader impacts of introducing universal credit make the argument for reform even more compelling. The original impact assessments published alongside the Bill suggested that around 2.7 million households will have higher benefit entitlements under the new regime—for over 1 million households, this will amount to more than £25 a week. These numbers remain our best estimate and will be updated in a revised impact assessment in light of the localisation of council tax benefits. Because universal credit is properly focused, 85 per cent of this increase will be in the poorest 40 per cent of households, and the commitment to transitional protection means there will be no cash losers at the point of transition, all other things being equal. We anticipate that more people will take up benefits once the system is simplified, with the combined impact of take-up and entitlement potentially lifting 600,000 adults and 350,000 children out of poverty. The combined effects of welfare reform could lead to up to 300,000 fewer workless households. Taken together, these changes will help to end benefit dependency by creating a more active regime, which encourages people into work by making the financial gains clear and real for hundreds of thousands of people. The introduction of universal credit will restore affordability by creating a simpler benefits system, focused on those in the greatest need; and it will restore fairness for both taxpayer and claimant. A more transparent system will be more accountable to the public. A more effective system will deliver more for those who need it most. This Welfare Reform Bill is not just about those who are claiming benefits, it is also about those who are paying into the system. We know that taxpayers want a benefits system that is fair. They want a system that does not abandon those at the bottom and a system that they can turn to if they need it. However, taxpayers also want a system that is not wasteful; a system that does not pay benefits to those who can work but choose not to; a system that is not open to abuse; and a system that is affordable and effective. I believe this Welfare Reform Bill will deliver that system. Universal credit will generally be just one monthly payment per household, making it easier for people to understand what they are entitled to and manage their own finances. This is an important point. Currently, the experiences of unemployed people in this regard, particularly for the long-term unemployed, are very different from those of people in work. We must ensure that as many people as possible are empowered to manage their own finances and make the choices that people in work must make. We must close the gap between being out of work and having a job, so it is not such a major shift for people leaving benefits. Payments to tenants must be the default position under universal credit. That said, I am alert to the sensitivities that exist in relation to the supply of affordable housing and in particular for the social rented sector and its lenders. I am prepared to explore options that will provide some protection for this industry and I shall announce how I plan to do this in due course. For the moment, let me say this: I am convinced that we can deliver a system that puts the full universal credit payment into a claimant's hands, empowering them to manage their own budgets and narrowing that gap between the experience of being in and out of work. At the same time, I believe we can build safeguards into the system to minimise the impact on social landlords’ incomes and reassure lenders. Universal credit payments will include additional elements for housing and childcare costs. However, as I am sure noble Lords are aware, the Government have made a decision to localise council tax support, and a consultation on the detail of this is currently under way. Much was made of this decision in the other place, so I will make a point for the record. Council tax benefit currently sits across the portfolios of two different departments. Ministers from both are determined to protect the positive work incentives and distributional impacts of universal credit and we continue to work very closely on the detail of these reforms. We have already indicated to the House that we may be minded to make some changes to universal credit design in light of this decision and we shall provide further detail in due course. With the passing of this Bill, we anticipate the first new claims for universal credit will start in October 2013, with all existing customers moved to the new system by 2017. In the meantime, this Bill also includes some reforms to the current system. These changes will amend some of the existing rules and regulations and start to bring them into line with universal credit. One such change is the proposal to time limit employment and support allowance—ESA—to one year, paid on the basis of national insurance contributions, to people in the work-related activity group. The basis for this change is to bring ESA rules closer to the contributory jobseeker’s allowance rules, which currently pay six months’ jobseeker’s allowance on the basis of national insurance payments. This change also supports the intention that ESA should be a temporary benefit for the vast majority of people—which indeed it is. This is particularly true of those in the work-related activity group, who are assessed as likely to recover and make an eventual return to work. There remain a number of options for the minority of people who do reach the time limit: a return to work if able; a move to income-based benefits if appropriate; and for those whose condition worsens, potentially continuing payments through the support element of contributory ESA. This is a change of principle more than convenience. Allowing people to become dependent on benefits when they do not need to be is neither fair to them nor to the taxpayer, and it is no longer affordable. This is not about removing support; it is about making sure people get the right kind of support. This is also the case for people who have cancer. We have already amended the rules, put in place by the previous Government, so that people awaiting or in between certain chemotherapy treatments receive the support they need, and we have specifically asked Professor Harrington to look at this issue in his next review, which he has done in partnership with Macmillan Cancer Support. I know that many noble Lords are particularly interested in this subject and I can tell the House today that we have received Professor Harrington’s second report and we are considering it carefully. I will update noble Lords again in due course. We do not underestimate the impact that this change will have on claimants. As a result, we have asked Jobcentre Plus to send out a letter to all ESA customers who could be affected by the change. The letter will be sent out over a four-week period starting on 19 September. We appreciate that it is unusual to alert customers before the Bill has been passed by Parliament, so we have been very careful about the wording of the letter, but we think it is important to provide as much information and reassurance as we can at this stage. We must apply the same principles of fairness, affordability and ending benefit dependency across the welfare spectrum. This is why we must reform support for disabled people. Current provision of disability living allowance, or DLA, is confusing and inconsistent. Too many people think of DLA as an out-of-work benefit. In fact, DLA’s purpose is to provide financial support to contribute towards the extra costs incurred by disabled people as a result of their disability, irrespective of whether they are in or out of work. DLA awards have become inconsistent and subjective, and spending on this benefit has started to spiral out of control. More than two-thirds of claimants receive one or both of the two DLA components indefinitely, with no systematic checks to see if their condition has changed. This is no longer acceptable. We must support people properly and that means more accurate and more regular assessments to see if their condition has changed and ensure they are receiving the right level of benefit. This means being prepared to pay more for those whose needs have increased as well as reducing the benefits of those who no longer need them. To that end, this Bill allows for the abolition of DLA and its replacement with the personal independence payment, which like DLA will be available to disabled people both in and out of work and will be non-taxable. The key changes will be an end to automatic entitlements based on having a certain health condition or impairment, a more objective assessment, and the introduction of more regular check-ups. These reforms are designed to deliver a more responsive and sustainable benefit and to ensure support is focused on those who face the greatest challenges to take part in everyday life. They are not about taking support away from those who truly need it. Many of you have raised with me the issue of DLA mobility payments to care home residents. We have listened to the concerns raised about mobility provision in care homes and will consider the needs of disabled people living in residential care and receiving DLA as we develop personal independence payment for introduction in 2013. Our aim is to treat disabled people fairly, regardless of their place of residence, not to reduce their ability to get out and about. We will continue to gather and consider the evidence about existing provision as we develop our plans. The introduction of personal independence payment will restore fairness in disability benefit provision by providing support on the basis of ongoing need, and replacing DLA will bring spending in this area under control, making sure the system is affordable both now and in the future. But this is not about cutting spending. The funding for all DLA, in real terms on 2011-12 figures, was £12.1 billion in 2009-10. At the end of this Parliament in 2015-16, the funding will be slightly higher at £12.3 billion. The talk of cuts relates to projections on a benefit that was rising sharply. What we are doing is bringing it under control. I hope that noble Lords can agree today that the spirit of these reforms is right: that it is right that we do not put people on any benefit and just leave them there, as has so often been the case with DLA; that it is right that we design a more objective assessment, one which can better take account of those with mental health conditions and learning disabilities who may also incur extra costs but which DLA is so ill designed to support; and, wider, taking this package of reforms as a whole, that it is right that we act now to reform the benefits system, restore fairness and affordability in welfare and end benefit dependency. The reforms contained within this Bill will mean some of the poorest people in the country will benefit from more than £4 billion in welfare payments, as set out in the previous impact assessment, through increased entitlement and take-up. These reforms will lift as many as 950,000 individuals out of poverty, help 700,000 households keep more of the money they earn and cut the number of workless households by up to 300,000. These reforms will bring real change in both attitude and behaviour. This Bill marks the end of the something-for-nothing culture we have seen so recently on our streets. It is a new dawn for welfare—one of fairness, responsibility and effective support. This is something I believe we should all welcome and I commend this Bill to the House. I beg to move.