Welfare Reform Bill

My Lords, the purpose of the amendment is write into the Bill a requirement to provide an earnings disregard for second earners, the majority of whom are women. The Minister will no doubt say that this is not necessary because, as the Minister of State confirmed in the other place and the Minister here confirmed at our previous sitting, the Bill’s regulation-making powers enable this or a future Government to introduce a disregard for second earners at a future date, if they so wished. I welcome that flexibility. Nevertheless, there are important issues of principle here that need to be debated—not all of which were covered in our initial skirmish in the previous sitting. I once again apologise for the length of my remarks but there are important points to be made. However, the Minister can relax because I will not this time quote any e-mails from Conservative supporters. The treatment of second earners is an important question that has caused concern among anti-poverty organisations such as Save the Children, and women’s organisations such as the Women’s Budget Group that thinks that this is one of the most important issues in the Bill that affect women. I am grateful to members of the group, of which I am a member, for helping me to think through some of these issues. The treatment of second earners also threatens to undermine the Government’s claims to be substantially improving work incentives. The Government have sent out rather mixed messages on incentives for second earners and we would welcome a clear statement of the position. I hope that having listened to the arguments the Minister might go a little further than what he said in our previous sitting. It is true that second earners are now the only group whose earnings will be subject to the taper from the first pound when the disregard for the couple has been exhausted by the first earner. In a means-tested system based on the joint resources of a couple, some disincentive for second earners is inevitable, and I accept that this is a long-standing problem and is one reason why some of us would like there to be less reliance on means-testing. However, the problem is being made worse under universal credit, and the judicious use of disregards could mitigate it. A second earner’s disregard would enhance the architecture of universal credit by addressing the increased disincentive that most—not all, I acknowledge—second earners within the universal credit system will face. This is primarily because of the higher taper rate for those whose household income disqualifies them from housing benefit and council tax benefit under the present system. On top of that, those with childcare costs who are working more than 16 hours a week or more will, as a result of the reduction in the limit from 80 per cent to 70 per cent, have to pay more towards their childcare costs than previously. The reduction is already in force, although I welcome the fact that those working fewer than 16 hours a week will benefit from the extension of help with childcare costs. Because even small changes can tilt the balance of advantage of working for second earners, the introduction of a separate disregard for them could prove to be a cost-effective innovation. Policy briefing note 5 analyses participation tax rates—or PTRs, which measure the incentive to enter paid work—and marginal deduction rates, or MDRs, which calculate how much of a small increase in earnings is lost through a combination of benefit withdrawal and taxation, and therefore measure the incentive to increase earnings once in paid work. In both cases, the lower the rate the higher the incentive. The briefing note shows that around 900,000 or three-quarters of potential second earners whose householders qualify for means-tested support under universal credit will face a lower incentive to take employment than under the current system, with an increase in their average PTR from 35 per cent to 65 per cent. It appears that all the nearly 1.5 million existing second earners will see an increase in their PTR from 30 per cent to 45 per cent on average. The note concedes that this may reduce some existing second earners’ incentive to work. Where this leads to a withdrawal from the labour market will presumably increase the amount paid out under universal credit. With regard to incentives to earn more when in work, approximately 300,000, or three-quarters, will face an increase in their MDR and, therefore, reduced incentives. According to a Written Answer in the other place, five out of six of these have children. These calculations, and the worked example we have been given, take no account of childcare costs, although we are promised that these will be factored in at some future point—I trust before Report. Will the new calculations take account of the reduction from 80 per cent to 70 per cent on the debit side, as well as the extension to parents doing mini-jobs on the credit side? I suspect not, because this is one of the cuts already implemented, which can conveniently be ignored in impact statements. Fortunately my colleague Donald Hirsch, of the Centre for Research in Social Policy, has done some calculations for the Resolution Foundation and Gingerbread which take account of the cut already made in support for childcare, as well as the policy announced recently. He has kindly allowed me to use them, even though I do not believe that they are yet in the public domain. One example illustrates well the nature of the disincentives faced by some second earners. He calls it the ““hours trap””. He gives the example of a parent with a low-paid partner. She takes a job at the minimum wage of £6.08 an hour for 16 hours a week to supplement the family income. In 2010, of the £97.28 she earned, she retained £46.19 after taking account of deductions and net childcare costs of £11.20. This represented a withdrawal rate of 53 per cent. Under universal credit, the much faster withdrawal of support for second earners, together with the recent cut in childcare support, means that much more of the extra income will be lost—she will retain only £17.25 of the £97.28, i.e. an 82 per cent withdrawal rate. Admittedly, for those working fewer than 16 hours a week, an 82 per cent withdrawal rate is an improvement on the current situation, because of the extension of help with childcare—but, as Donald Hirsch observes, it is not an improvement that is likely to get many second earners out to work. There are three main reasons why I believe we should do what we can to maximise work incentives for second earners. The first concerns the Government’s own anti-child-poverty strategy. It is clear from the statistics that two-earner families with children are much less likely to be in poverty than single-earner families. Without a separate disregard, it will be very difficult for second earnings to fulfil their potential as a route out of poverty. The latest analysis of the official statistics by the Institute for Fiscal Studies shows that the child poverty rate after housing costs drops from 18.9 per cent in couples with one full-time worker to only 5.1 per cent in couples where there is also a part-time earner, and 2.1 per cent where there is a second full-time earner. Moreover, if we take a dynamic perspective, as Ministers encourage us to do, it underlines the potentially protective function that second earners can play in two main ways. If the first earner—usually, still, a man—loses his job, a partner’s earnings can help the household cope while he looks for another job. When the mother is in paid work when living with a partner, she is better equipped to remain in the labour market should that relationship break down and should she then form a lone-parent family household—that family is then less likely to be in poverty. She is also better equipped to respond positively to the extension of conditionality to lone parents with young children. A second earner disregard could thus help achieve the Government’s aim of reducing so-called welfare dependency among both two-parent and lone-parent families, because ultimately it offers a potential route out of universal credit as well as out of poverty. Secondly, there is the question of implications for shared parenting, a Government goal articulated in their consultation on modern workplaces, which I very much welcome, even if its recommendations on parental leave look to be under threat according to recent newspaper reports. The equality impact assessment acknowledges that, "““it is possible that in some families, second earners may choose to reduce or rebalance their hours or leave work””." However, it reassures us: "““In these cases, the improved ability of the main earner to support his or her family will increase the options available for families to strike their preferred work/life balance””." This, it suggests, could be a ““dynamic result”” that improves family life. It appears that what exponents of nudge like to call the architecture of choice is being tilted towards a more traditional male-breadwinner model, which may not necessarily reflect the preferred work-life balance of both members of a couple and could weaken women’s labour market positions. According to the equality impact assessment, this traditional male-breadwinner model apparently improves family life. Indeed, at a Social Security Advisory Committee stakeholder event, held at around this time last year, I questioned the Secretary of State about this. He answered in terms that suggested he regarded a return to such a model as a good thing, although I accept that this may not be the Minister’s view. Moreover, I question the impact assessment’s assertion, made in this context, that universal credit policy is gender-neutral. It states: "““Where men and women are in the same circumstances they are treated equally under Universal Credit””." We should hope so but in a gender-unequal world men and women are often not in the same circumstances in either the family or the labour market, so the effects of denying second earners a disregard are not gender-neutral. Therefore, I am not convinced that the Government are fulfilling their legal duty to promote gender equality here. Perhaps the Minister will tell us what advice the department has taken on this. Thirdly, the Government nevertheless seem quite sanguine about the position of second earners as they consider any such risk of decreased work incentives to be justified. The Government are concerned only with incentives at the level of the household, rather than the individual. Indeed, they tend to conflate the two. In an Oral Answer in the other place, the Secretary of State stated that, "““universal credit will provide much better incentives for the first earner, giving a greater choice to the household about how it wishes to spread its income””.—[Official Report, Commons, 28/3/11; col. 2.]" This, together with the quotation that I read from the equality impact assessment is an example of what some economists called a unitary household perspective. It ignores the fact that couples are made up of two people and that the autonomy of each is important. Improving incentives for a first earner, even if on behalf of the couple, does not compensate for worsening them for a second. The choice of one partner is being enhanced at the expense of the other. In an earlier sitting, the Minister observed astutely: "““Effective choice exists only when the balance of power is equal between tenants and landlords””.—[Official Report, 20/10/11; col. GC 169.]" The same is true within those households where an imbalance of power exists, often reflecting the economic power of each partner. A study of BME maternal poverty conducted for Oxfam found that the women interviewed were keen to take paid work as it is the best way to improve their household finances. However, in addition to the usual barriers, such as childcare, some of them faced their husbands’ attitudes. For the women who were in work, their jobs were an important source of self-esteem and independence, and they often had greater access to household resources than those without paid work. Although more traditional attitudes to gender roles might be more common in some BME households, they are not confined to them. Consider the situation of a couple where the man is in low-paid work and receiving universal credit. He prefers his partner to be at home, looking after the house, the children and him. She would like a part-time job, perhaps to achieve a modicum of financial autonomy, to enjoy the sociality of paid work or to improve the household finances. Her bargaining position is not strong if taking paid work will reduce his universal credit and he can point out that her earnings will not bring much extra money into the household. If she could say that she and the household can keep a chunk of her earnings before they are affected by the taper, it would increase her bargaining power and make her choice to take paid work more effective, following the logic of the Minister’s own argument about choice and power imbalances. Finally, there appears to be something of a tension between the Government’s apparent lack of concern about the reduced incentives faced by second earners and the treatment of this group in the new conditionality rules, which we have discussed. In particular, the in-work conditionality rules will require a couple to earn twice as much between them as a single person in order to escape sanctions. Yet if the first earner is unable to earn enough to do so alone, a second earner’s wages could be the most viable means of complying. In short, whether looking at it from the point of view of the universal credit architecture, the Government’s child poverty strategy and its ambitions for shared parenting, or of financial autonomy for women and effective exercise of choice for them with regard to paid work, a second earner disregard represents a cost-effective enhancement to universal credit which, arguably, could eventually pay for itself. In a previous sitting, the Minister gave some costings for a second earner disregard. Are these gross or net costings? In other words, do they take account of the increased tax and national insurance and reduced universal credit payments that could flow from more second earners moving into paid work? The Minister also said that this is not a matter of principle, but affordability. I hope that I have convinced him and the Committee that there are important principles at stake and that he will therefore go further than before in accepting the case that has been made in principle and assure the Committee that he would look favourably on such a disregard as and when the resources are available, taking into account the point about net and gross costs. I beg to move.