Welfare Reform Bill

My Lords, in moving Amendment 22B, I shall also speak to Amendment 22F, which seeks to exclude amounts in individual savings accounts or other prescribed savings accounts as identified by the Secretary of State up to a value of £50,000 from the capital of claimants for the purposes of entitlement to universal credit for those in work or those who have been in work within the past 12 months. The issue of the application of the capital rules to those either in work or trying to get back into work causes me great concern. A Government in today’s world have to have a set of compatible policies that seek simultaneously to achieve a series of outcomes: a welfare system that is fair and incentivises work, a desirable level and distribution of savings that sustains personal responsibility, and effective support for ordinary hard-working people in order to manage their experience of today’s flexible labour market. I fear that the manner in which the tax credit system is to be integrated into universal credit will create inconsistencies in the delivery of those desirable outcomes. The application of the tariffed income and capital limit rules under universal credit that do not currently apply under tax credit to those in work is an important instance that will give rise to inconsistencies. Universal credit is changing the capital rules for those in work. There are no capital cut-offs in tax credit, although taxable income from savings and other assets is taken into account, subject to a disregard of £300 a year. Under universal credit, as the Minister has said, there will be a £16,000 capital cut-off with a harsher regime of an assumed tariffed income on savings above £6,000. I acknowledge that under the current rules, capital limits of £6,000 to £16,000 apply to jobseeker’s allowance, and a tariffed income is assumed for capital within those limits, but the Government have chosen to opt for a harsher anti-savings regime and to apply it to everyone, including those in work. It really is quite a harsh anti-savings regime. The simple mantra of, ““If you are in work and you have savings, you should not look to the taxpayer for support””, which is the explanation given in the departmental briefing notes, ignores the complexities of what is being managed here. It is important to have a benefits system that works for the poor, but the tax credit system was also set up to enable people in work to better themselves and to improve their position. If work, responsibility, control and aspiration are to be encouraged, those in work should find it possible to save and to build up a reasonable level of financial assets. They should not be in the position where, if they have been responsible, that support is suddenly taken away from them. This penalises those who save and undermines responsible behaviour. Families on modest incomes with modest savings will be hit by the proposed new rules, but not only families with higher levels of savings will be hit; those with savings above £6,000 will be impacted by tariff rules that assume 21 per cent rates of return— 21 per cent times the typical rate of return in an ordinary savings account. As the Minister said, in the briefing it is estimated that, in steady state, there will be 200,000 to 300,000 households with savings of between £6,000 and £16,000, and in 2014 a tax credit population of 100,000 households with capital over £16,000. However, the people in those populations will change from time to time, so the total community that will experience the impact of these capital rules will be significant over time. I can see from the briefing that some transitional protection is intended for those on tax credits, but it is clear that a moderate change in working circumstances could trigger the sudden loss of the disregard of their savings, with a consequent loss of income, so sending out a very clear and quite shocking message that it does not pay or has not paid to save. The Minister, through the design of the universal credit system, wants to de-risk the move from benefit into work, and I give him full recognition for that, but should he not also de-risk the inevitable move from work into benefit, allowing responsible hard-working people to spring back, stay resilient and deal more easily with difficult labour markets? In today’s labour market, what constitutes an insecure job has a much broader definition than has historically been the case. Do we not want people operating in a flexible labour market to save to smooth their circumstances, especially if they have children or commitments that they cannot duck? However, under the capital rules of universal credit, why should they bother? They will be penalised if they do. If I could press the point, surely it is desirable to reduce the risk that people face when they move from work to benefits. The capital changes for people in work now actually increase that risk, and there is no incentive to save in order to manage yourself through that risk. That is the danger that the Centre for Social Justice so powerfully spelled out in its report, Dynamic Benefits, on page 121, and in its executive summary on page 8, and in evidence to the Commons committee on 22 March this year. It was an interesting exchange. Stephen Timms commented to the gentleman from the Centre for Social Justice who was giving evidence that in its report, "““the Centre for Social Justice was critical of the effect of the savings cap in means-tested benefits currently. The Government decided to reject your advice on this and to extend the cap into in-work benefits””." Mr Ghelani, on behalf of the Centre for Social Justice, replied: "““It is fundamentally a disincentive to save. I think that the savings limit for people who are not working and are on benefits has been £16,000 for I am not sure how many years, but certainly rather a lot. The limit has not been uprated for at least a decade I would say, and possibly a lot longer. By extending that to people who are working, people who get close to that threshold might suddenly realise that it does not pay to save and that there are perhaps other things that they should be doing with the money, whereas saving is in itself a protection against dependency””.—[Official Report, Commons, Welfare Reform Bill Committee, 22/3/11; col.18.]" The Centre for Social Justice makes the point with a fluency that I would struggle to replicate. In other arenas, discussions are taking place about incentives to raising saving levels by ordinary people: ISAs as feeders to pension saving; and other measures designed to promote asset accumulation and responsible behaviour, particularly for those on low to moderate incomes. However, the application of these proposed capital limits to in-work benefits will just close down those discussions because they will simply undermine any future initiatives. It is therefore a kiss of death to asset accumulation strategies for low to moderate-income earners at certain income levels. This amendment seeks to have ISA savings up to a maximum of £50,000 disregarded for the purposes of the universal credit for those in work and those in work in the past 12 months. ISA is a tax-incentivised product the cash element of which was targeted particularly at ordinary people. The £50,000 allows for those, including joint claimants, who have been responsible over a very long time and who may be older than some other younger claimants, because persistency of saving over a lifetime is an important part of taking responsibility. However, once that ISA saving is drawn down, that tax-advantaged element is lost for ever, because under the ISA rules there is no way of restoring that saving that had to be drawn down and of reclaiming the accrued tax advantage. It is gone, and you are disadvantaged in that sense. It strikes me as rather unfortunate that well-off people and non-working members of their families and spouses can continue to enjoy the accruing benefits of various forms of tax-incentivised savings, often at 40 or 50 per cent tax relief, whereas hard-working, moderate or low-income families who behave responsibly can find their incomes reduced. This is unfair. We have had quotes of the order of £70 million to £90 million, because the noble Lord anticipated this amendment. I have to say in response that if there is a requirement to deliver £70 million to £90 million, the incentivised savings for the better off and the levels and the tax relief on those incentivised savings are a better area in which to seek to find that money than that of hard-working people who will suddenly find themselves up against a set of rules that take away their money and inhibit their ability to get back into work fairly quickly when they are trying to juggle being out of work. Universal credit has to embrace both those who are in sustained and long-term unemployment and those hard-working people who are managing periods of difficulty or unemployment that has been imposed on them. An efficient welfare system does not suddenly remove support from such responsible people and families who are managing themselves through problems such as redundancy into another job. Again, I am supported by the Centre for Social Justice in the view that it is not desirable to be so harsh on people who have savings when those people are out of work or trying to manage not becoming dependent. To address this problem, this amendment would allow ISA savings or such other prescribed savings products to be disregarded for a period of up to 12 months after losing a job. The fairness to the taxpayer argument has to be weighed against the danger of a design of the universal system that appears punitive for responsible working people who were saving and will actually increase dependency and undermine the incentive to save. I beg to move.