Welfare Reform Bill

My Lords, depending on how the Minister responds, Amendment 29 is, I hope, a probing amendment. It deals with the treatment of income in universal credit. As drafted, paragraph (a) of subsection (3) deals with earned income, while paragraph (b) deals with unearned income. Amendment 29 would insert a new category of income; that is, unearned income which is to be treated as earned income. It seeks to replicate existing provisions within tax credit legislation whereby certain types of unearned income are treated in the same way as wages, including sick pay and maternity pay. We welcome the DWP briefing note on universal credit, which states that: "““The powers in the Bill permit us to make regulations to treat unearned income in the same way as earnings. These powers may be used, for example, in the case of Statutory Sick Pay””—" I have emphasised the word ““may””—I hope that it is more of a ““shall”” than a ““may””. However, perhaps we could have some clarification on that. Statutory payments such as statutory sick pay and statutory maternity pay are paid through wages and it would therefore be difficult not to treat them as earnings. We welcome that indication, but again, some clarification of the word ““may”” would be a nice assurance. However, although there is no policy reason why those who receive maternity allowance or ESA during the first six months of illness should be treated differently, we seek an assurance from the Minister that these benefits will be treated in the same way; that is, as earnings. By way of example, the Minister will know what I am referring to when I speak of two groups of people who get ESA in the first six months of sick leave rather than SSP. These two groups are those who have been working until they become ill, but are likely to receive ESA rather than SSP. One group is the self-employed, who will have to claim ESA as they have no entitlement to SSP, and the second group is that of people who work for a small employer and become so ill or disabled that it is clear they will be unable to return to their current job. People in this group often give in their notice because they feel it is unfair that their employer is unable to replace them while they are claiming SSP. In monetary terms the difference is fairly obvious. For example, in the case of a home owner during the first three months of sickness, under the current scheme they get in addition to their ESA of £65 a week a payment of up to £52 working tax credit provided that they were working for at least 30 hours a week. That gives them a total of £117. They would have to pay their mortgage out of this because they would not have help with the mortgage repayment. Under universal credit, if the ESA is not treated as earnings, they would have just £65 a week out of which they would still have to pay the mortgage. However, if ESA is treated as earnings, a single person with no disregard would keep an extra £23 in addition to the ESA, which would at least give them £88, and if they qualified for a disability disregard, they would get a total of £130. It is an important difference, not least because people who suddenly have to stop work because of a stroke, accident or serious illness such as cancer face a sudden and rather dramatic drop in their earnings. At the moment the money they get from tax credits for the first six months helps enormously in the adjustment to a drop in their income at the same time as they often have an increase in their outgoings. Despite that, even at the moment many are pulled into debt just when they are also trying to deal with the onset of an illness. Indeed, Citizens Advice found that illness is a very significant cause of debt in a quarter of the clients they advise on debt issues, with about one in 10 clients attending a county court hearing for a possession because of mortgage arrears reporting that illness was a major factor in falling into those arrears. We know that not just the loss of income with a serious illness but all the extra travel to hospitals and taxis and all that goes with it can increase outgoings at that time, so it could be much worse under universal credit should ESA not be treated the same way as statutory sick pay. The second group about whom we are seeking information from the Minister under this first amendment is mothers who will be receiving maternity allowance rather than statutory maternity pay. These are mostly women who have been working right up to when they go on to maternity leave but because they changed jobs about the time they became pregnant, they will be receiving maternity allowance rather than statutory maternity pay. At present they are eligible for working tax credit. Again, perhaps the Minister could clarify that maternity allowance will similarly be treated as earned income within universal credit. The difference in monetary amounts is significant. At the moment a lone person on maternity leave with one child who had been working at least 30 hours a week would get £125 maternity allowance, £20 child benefit and £55 child tax credit, as well as up to £88 working tax credit. Even after paying rent of about £70, she would have about £218 left. However, under universal credit, if maternity allowance is not to be treated as earnings, she would have a personal allowance of £190 from which her maternity allowance would be subtracted pound for pound, so she would be left with about £140 after rent, which of course is below the poverty line. However—I hope that we get this assurance—if maternity allowance is treated as earnings, the first £40 of her maternity allowance would be disregarded and she would keep £30 of the rest, leaving her £70 better off than in my earlier calculation. It would obviously be pretty unfair not to treat maternity allowance as earnings. There is no policy justification for any difference but clearly it is immensely important to women, particularly in the first year of their child’s life. We are pleased that the DWP has indicated that statutory payments may be treated as earnings—I hope they will be treated as earnings—but we would like some reassurance that when the person is getting maternity allowance or ESA instead these will similarly be treated as earnings. Amendment 30 in the same group requests that the Secretary of State conducts, "““a review into the impact of a taper rate on claimants and work incentives””," to conclude after one year and to be published. The taper is a key element of the new universal credit. One part of the whole edifice architecture is obviously bringing in-work and out-of-work benefits together in one system. But moving from a cliff edge to a taper is also intrinsic to making work pay in that people can keep a significant proportion of any increased earnings. That objective is shared by the Opposition. However, everyone, not least the Minister, knows that the original taper as envisaged by the Centre for Social Justice in its report on dynamic benefits was 55 per cent. The Bill does not set a taper rate but the White Paper, Universal Credit: welfare that works, suggests that the taper rate will be 65 per cent, which is a big difference from 55 per cent. The Government describe this as the most generous taper affordable at present. But the Minister will acknowledge that the 65 per cent taper will leave some families worse off than now, with work incentives less under universal credit than under today’s system. It would take a more generous taper to increase work incentives and to help tackle child poverty by boosting household income. Save the Children has shown that a lone parent with two children working full time would be £25 a week better off under a 55 per cent rather than a 65 per cent taper. Our request to the Government is twofold. First, they should clarify the intended taper rate. Secondly, under this amendment, they should commit to reviewing the taper rate annually with the aim of moving to the recommended 55 per cent as soon as possible and allowed by HMT. We accept that at present the 55 per cent would cost £2.8 billion. Will the Minister set out the conditions under which the Government would move towards the other taper and indicate whether it is proposed to move incrementally towards it? I recognise that the Government will want to review the effect of the 65 per cent rate on incentivising work and how it impacts on the behaviour of claimants. They would not want the whole edifice being created to be put in jeopardy by an ineffective rate. We therefore ask the Minister to commit to an annual review of the taper with a view to introducing the more generous rate of 55 per cent to ensure that work pays for all. In particular, we would ask that any such annual review pays particular attention to the needs and aspirations of second earners, given that nearly a million will face reduced incentives to work compared with the present system. Furthermore, it would be useful if the Minister would set out the economic and financial conditions required to achieve a 55 per cent taper. I beg to move.