Welfare Reform Bill

My Lords, this is the first time I have moved an amendment, so I hope your Lordships will be gentle with me if I make any mistakes.. First, I shall make a couple of apologies. I am sorry that I was not here last week. I was one of those caught out by the change in recess dates. I apologise, too, for the length of my opening remarks, but this is an issue on which I feel strongly, as do a number of organisations, such as the Women’s Budget Group and the Child Poverty Action Group, both of which I am very involved with. The amendments are variations on a theme. The aim is not to get frequency of payment written into primary legislation, as that clearly is not appropriate, but to try to persuade the Minister to think again about the decision to make payments of universal credit monthly. In the other place, the Minister said that the Government are sufficiently open-minded to recognise the issues that monthly payments generate and that they are not ruling any option in or out. Given that presumably this decision is being made on the balance of the argument and does not affect the fundamental architecture of universal credit, I hope that the spirit of open-mindedness will prevail today. I believe that the balance of evidence does not support monthly payments and will argue that they could undermine the universal credit architecture, the importance of which the Minister has emphasised. The rationale for monthly payments has been set out helpfully in the second universal credit policy briefing note. There appear to be two main elements to this rationale. The first is that universal credit should mimic work and receipt of a salary so that families are able to manage their financial affairs in the manner that best reflects the demands of modern life, whether they are in or out of work, so that they will be better prepared for the reality of working life. The second is that it fits well with the overarching universal credit narrative of simplicity and preserving work incentives. Let us consider the realities of working life. The departmental briefing note states that 75 per cent of all those in employment are paid monthly. Of course, the obverse of that is that one-quarter are not. Estimates given to me suggest that at least one in five are still paid weekly or fortnightly. According to the briefing note, as many as half those earning less than £10,000 per year are not paid monthly. I think we can safely assume that they are paid more frequently. So for many, the reality of working life is still weekly or fortnightly wages. Moreover, where universal credit is paid on top of a monthly wage, it is not clear why it has to mimic it, nor why it has to do so for those who are not expected to seek paid work. At present, in-work tax credit recipients are able to choose between weekly and four-weekly payments—or perhaps it is two-weekly. Those who receive child tax credit above the family element—those on lower incomes—are more likely to receive it weekly. Another reality of modern working life—I am very grateful to Richard Greenwood, who wrote to me after Second Reading, for drawing this to my attention—is payday loans. Mr Greenwood points out that a whole credit industry called payday loans has risen up on the back of predominantly low-income earners who get paid monthly. They find it hard to budget properly, so often obtain expensive, short-term credit on the pseudo-security of their next monthly income day. Mr Greenwood informs me that in 2010, Consumer Focus published a report that suggested that payday lending in the UK had quadrupled in the preceding four years, with an estimated 4.1 million loans being made in 2009-10. The report was called, Keeping the Plates Spinning. I fear that monthly payments will mean either many more plates being smashed to smithereens or—as Mr Greenwood warns—many more low-income families taking out expensive, short-term credit. Even worse, they could turn to loan sharks. The point was made in a committee of the other place that similar concerns were raised when benefit payments were changed from weekly to fortnightly, but that the expressed fears did not materialise. In response, I point out that moving from fortnightly to monthly payments is a much greater leap. Also, according to Fran Bennett of the Women’s Budget Group, recent findings from qualitative research with low-income families carried out by Oxford University and funded by the Economic and Social Research Council and the Department for International Development suggest that we should not be too complacent about the impact of the earlier move to fortnightly payments. One respondent, a woman with a partner and four children, said: "““Before the switch to fortnightly payments I didn't have to struggle with anything … with all these changes I’m just struggling … before I never struggled … like, never””." Another respondent, a lone mother, said that, "““two weeks is a long time … now they have put that fortnightly and all … it’s just wrong””." More generally, the Women's Budget Group cites the 2008 Families and Children Study that states that one in four families with children runs out of money always, most often or more often than not before the end of the week or month. Among the lowest-income one-fifth, the figure is 37 per cent—nearly two in five. This is not an exceptional problem affecting only a small minority of supposedly inadequate budgeters. Research evidence points to how well most people on low incomes manage their budgets. However, numerous studies also reveal the stress caused by budgeting on a low income, particularly for women, who still tend to have responsibility for day-to-day budgeting in low-income families and who thus act as the shock absorbers of poverty. Even if most people eventually adapt to monthly budgeting, the long-term consequences of the difficulties created in the shorter term could be immense and could undermine work incentives if people are saddled with debt. The Minister has already told us that the typical family in receipt of universal credit will have virtually no savings on which to fall back. I am afraid that it is not good enough to make vague promises of appropriate budgeting support for those who cannot manage monthly repayments. This, we are told, might be financial advice—will the Minister please explain who will provide this advice about budgeting?—or it might be interim and bridging loans or possibly more frequent payments in exceptional circumstances. Does this panoply of special assistance, which implies that the problem lies with the claimant rather than the system, not strike noble Lords as rather sullying the narrative of simplicity that monthly payments are supposed to exemplify? Indeed, according to the Financial Times, officials have admitted that this special assistance could cost extra money but that the plans have not yet been fully worked out or costed. I ask that a fully costed plan is presented to your Lordships’ House before monthly payments are finally agreed. I know that some housing providers are also worried about the possible implications of monthly payments for arrears where housing costs are paid as part of the universal credit. I return to Mr Greenwood, whom I quoted earlier. He is a responsible credit provider who is very concerned about monthly payments—even if irresponsible providers, particularly loan sharks, could, I suspect, be rubbing their hands in glee. Mr Greenwood has kindly given me permission to quote from his e-mailed letter, which makes a case against monthly payments very eloquently. He states: "““At this stage I need to tell you my own perspective ... UK Homemaker (my business) extends small amounts of credit (on basic household items like fitted carpets and washing machines etc) to low income households across Scotland and N. England. We consider ourselves (not least through self-interest) to be ‘responsible lenders’ and as such have developed a set of credit rules based on ‘knowing our customers’ and ‘reasonable affordability’. To this end we go to massive ends to establish not just income levels but also frequency and dates of income in order to help customers micro-manage their usually scarce cash. Most of our customers are on benefits whether this be solely on benefits or a combination of low earnings plus benefits. I have over 30 years experience in this type of activity and the notion that ‘monthlyising’ (excuse the Dylan Thomasism) a low overall family income somehow prepares a family for work is complete anathema to me. The only thing monthly pay will prepare many low income families for is a week with a full belly followed by three weeks of hunger! When I started out in this business (mid 70s) the pattern then was Friday payday, so full bellies Friday, Saturday, Sunday but then the empty bellies thereafter could be withstood because another Friday was soon coming. The situation improved over three decades as different benefits were paid on different days and particularly where mixed with low earnings, low income at least became very frequent. Waiting a week for the next low income was bad enough then (and now) … for many though the prospect of waiting a month will be unbearable! (Simple analogy: if you were thirsty and in an arid place would you prefer a survival size bottle of water each day or a barrel once per month on the hope it lasts? This intended action will be bad enough for many families but the justification used by IDS””—" the Secretary of State— "““(most people in work are paid monthly) is plainly ludicrous ... my experience is that when low income families do manage to obtain work this is rarely the idyllic ‘monthly paid’ work IDS refers to … at this level of the economy most people going into work are weekly paid ... I know this not just because I observe closely our customers’ income patterns but also as an employer we offer all staff (other than management) choice of weekly or monthly income and weekly is the choice of nearly all entry level job takers (and despite a scheme to ease them into monthly pay) ... Finally I am a Conservative (I even stood for Parliament once) and I broadly support many aspects of the intended welfare reform (particularly simplifying its mind-boggling complexity etc) but this concept of ‘monthlyising’ low incomes is clearly and totally the most out of touch proposal imaginable””." I am tempted to say at this point that I rest my case, but I am afraid that I have some more points to make. According to the Women’s Budget Group, advisers on debt and welfare benefits in Oxfordshire recently asked some clients their views on monthly payments. They expressed real fears about not being able to manage and getting into debt. One new claimant of employment and support allowance said that, "““it is very difficult to budget with two-weekly payments; impossible with monthly””." A client with mental health problems said that he was still finding it difficult to adjust to the change to fortnightly payments because he felt that he was not very good at managing money or at adapting to change. Of course he might qualify for the promised budgeting support, but, as the Women’s Budget Group points out, "““this would mean having to label himself as failing.””" These worries are reflected in departmental research into perceptions of welfare reform and universal credit among claimants and others published last week. If noble Lords will indulge me, I will read from it. The report states: "““The prospect of a monthly payment was highly contentious in this research. In particular, those on low incomes anticipated that they would have great difficulty in budgeting as they are used to more frequent payments and do not tend to have much of a financial buffer to fall back on. Some of those working were more receptive, but these tended to be people who were earning more and already being paid on a monthly basis. Many low paid workers reported being paid more frequently and they reacted in a similarly negative way to this proposition to those currently receiving benefits ... Only a small minority spontaneously appreciated that monthly payments could prepare those claimants not currently in the workforce for working life. Overall, there was a strong feeling that there should be options, or at least an opt-out from the default offered where required””." There is a contradiction at the heart of this proposal. As part of the policy rationale, the departmental briefing paper states: "““Making decisions over household finances and budgeting in the most appropriate way to meet family needs is best done by the family itself””." Yet the Government are imposing their own views about one of the most crucial factors in budgeting: the frequency of payment. I suggest that the reason is that the desire to create, "““the conditions for attitudinal and behavioural change””,—[Official Report, 13/10/11; col. 628.]" emphasised by the Minister at Second Reading, in line with nudge theory, has blinded the Government to the reality of living on a low income. In its recent report on means testing, in an otherwise pretty clean bill of health for the impact assessment on universal credit, the National Audit Office observed its failure to address the question of claimant burden. I do not know if the briefing that arrived today does this, but certainly the original one did not. However, this claimant burden does not derive from the nature of the universal credit means test itself. I fear that the Government are creating a big burden for claimants that could corrode the universal credit architecture and undermine its credibility with claimants. It smacks of the kind of social engineering that Conservatives have traditionally been suspicious of. In a recent Parliamentary Answer the Minister stated that: "““The department has adopted the principles of user-centred design for universal credit ... This places customers at the heart of the design process to ensure their needs are reflected in the way policies are delivered””.—[Official Report, 3/10/11; col. WA 156.]" Yet the department’s own research that I have just cited indicates that this is simply not the case with regard to frequency of payment. Moreover, the researchers warn that monthly payment is one of a number of potential risks that could jeopardise the successful delivery of universal credit. They advise the department to consider mitigating action. We are offering the Minister a number of courses of mitigating action in these amendments. I should say that the noble Baroness, Lady Meacher, gives her apologies for not being here and says that she strongly supports the amendments and will pursue them on Report if necessary. I hope first and foremost that the Minister will reconsider the decision to pay universal credit monthly—or, at the very least, will allow the claimants to choose between fortnightly and monthly payments in line with the Government’s own philosophy of choice. As a fallback, a third amendment would allow a claimant proactively to choose fortnightly payments while retaining monthly payments as the default, and the fourth would require a review of the impact of monthly payments should they go ahead. I beg to move.