Welfare Reform Bill

I beg your Lordships’ pardon. I am speaking to Amendment 2, but also to Amendment 1, even though it has not been formally moved. These payments used to be paid weekly and, according to Fran Bennett of the Women’s Budget Group, there is evidence from recent qualitative research carried out at Oxford University that the move to fortnightly payments has caused more problems than is sometimes claimed. ““Struggle”” was the word one woman used to describe what it meant. The leap from fortnightly to monthly payments will be much greater. As one claimant put it, ““Very difficult to budget with two-weekly payments, impossible with monthly””. For those in-work recipients of tax credits who have opted to receive the credit weekly rather than four-weekly, who tend to be those on lower wages, the leap will be greater still. We know from government survey evidence that nearly two in five of the lowest fifth of low-income families with children run out of money always or frequently, so we are not talking about a small number of vulnerable people in exceptional circumstances, nor are we talking in most cases about mismanagement. Again, research shows how well most people on low incomes manage their money—probably better than many of us, because they have to. However, managing money on a low income is very stressful, particularly for women who act as the shock absorbers of poverty, and it can have a damaging impact on physical and mental health. One of the big fears is that monthly payments will lead to more families turning to high-cost credit and getting into debt. Just last week a big news story was the spread of payday loans which, according to an earlier report, have quadrupled in the past four years. In Committee, I read from an e-mail that I had received from a Conservative supporter, who described himself as a ““responsible lender”” to low-income households and who was enraged by the idea of monthly payments, which, he warned, would lead to an even greater reliance on such loans, which he wrote, had, "““risen up on the back of predominantly low income earners who get paid monthly””." According to last week’s R3 report, nearly half the population sometimes or often struggles to make it to payday. In addition, there has been growing use of pawnbrokers, particularly by low-income women with children. In Committee, we all got the impression that the Minister really listened and took on board the concerns expressed from all Benches. Indeed, he said that we had given him quite a bit of food for thought. This was very welcome. It is therefore disappointing that, having digested the overwhelming message coming from the Committee, he appears not to be willing to concede even on the point of giving claimants the right to opt for twice-monthly payments with the default remaining monthly, as provided for in Amendment 1. Instead, he appears to be looking to encourage access to budgeting products such as jam jar accounts, which would enable people to mimic jam jars in allocating their universal credit payment to different purposes through their accounts. The Minister rightly observed in Committee that budgeting products mystified him, so, like a good academic, I have done my research. I can see the attraction in this context and I hope that the Minister is successful in developing the idea, but I am yet to be convinced that such accounts obviate the need for the amendments before your Lordships' House. Certainly, this is the view of the Personal Finance Research Centre. At present, only about 150,000 people use such accounts and typically they are charged between £12.50 and £14.50 a month for doing so. While I acknowledge that Social Finance, which provided these figures, is enthusiastic about the potential of such accounts to help people manage monthly payments, there is a long way to go to get there from here. Moreover, it has been suggested by the Personal Finance Research Centre that such accounts are more relevant to helping people who receive income weekly or fortnightly and pay monthly and quarterly bills, so they would still have a role to play in the context of the proposed amendments. I know that the role of such budgeting tools will be explored in the planned demonstration projects, which according to the DWP will test some of the support mechanisms we will need to have in place for vulnerable groups. However, as I have already tried to explain, this is not just an issue for certain vulnerable groups. Anyone on a low income is potentially vulnerable to the problems created by monthly payments. Are they all going to be helped to access such budgeting products? I appreciate the effort that the Minister is putting in to try to develop the budgeting products solution to the problems raised in Committee, which he acknowledged were very real. However, I remain puzzled as to why he is so resistant to accepting the most obvious solution that we offered—more frequent payments. ““Is it because of cost?””, some people have asked me. It would appear not, as that was not an objection raised in Committee. The Minister himself emphasised in Committee that there is a distinction between payment period and assessment period, so that more frequent payment would not require more frequent assessment, which perhaps would have cost implications. The answer to a Written Question about cost in the House of Commons simply evaded the question. It leaves me to wonder whether the Minister’s solution is not more costly, particularly as it will also involve more frequent use of interim payments to tide people over as payments are made four-weekly in arrears. A story in the FT in September suggested as much. It said that, "““the plans had not yet been fully worked out or costed””." In Committee, I asked that your Lordships’ House should receive a fully costed plan before monthly payments are finally agreed, but no such plan has been forthcoming. In its absence, I believe that it is only prudent that your Lordships’ House build in the kind of protection that the amendment would provide. If it is not about cost, is it about complexity, as simplicity was one of the justifications provided in the policy briefing on the issue? Twice-monthly payments are no more complex than monthly, and arguably the kind of budgeting products being pursued by the Minister are themselves quite complex. Nor do I consider that building in a degree of choice is complicated for claimants to understand. In fact, I think that the Minister gave us the answer in his speech in Committee when he explained that, "““we will shape the way people arrange their lives””.—[Official Report, 10/10/11; col. GC 442.]" Originally the department’s argument was that monthly payments would mimic work and encourage people to prepare for work by managing their affairs, "““in a manner that best reflects the demands of modern life””." But it was then pointed out that about one in five people are still paid weekly or fortnightly, and the department's own figures show that as many as half of those earning less than £10,000 a year are not paid monthly. I think that we can safely assume that they are paid more frequently. Moreover, where universal credit is paid on top of a wage, it is unclear why it has to mimic it. So the mimicking work argument begins to look rather threadbare. Instead, it now appears that the Government want to shape the behaviour of people, both in and out of work, to fit with their perception of how modern life ought to be. We ““will shape the norm””, is how the Minister put it in Committee. There appears to be almost an implicit assumption that monthly payments are somehow morally superior to fortnightly budgeting. This all strikes me as the kind of interfering state paternalism or social engineering that modern Conservatives and Liberal Democrats would usually frown on. My preference is to facilitate the way in which many people on low incomes actually budget, through twice-monthly payments as provided for in Amendment 2. However, I would suggest that Amendment 1 does at least avoid the paternalism of the Government's position by offering the claimant choice. Indeed the department itself has argued that, "““making decisions over household finances and budgeting in the most appropriate way to meet family needs is best done by the family itself””." The amendment would allow the family to decide if twice-monthly payment would be a more appropriate way to meet its needs. But it still allows the Government to nudge the claimant towards monthly payments because this would be the default position. If the Government accepted this amendment, they would address the concerns raised in their own research into perceptions of welfare reform and universal credit, which the Minister told the Committee he was studying ““with great attention””. The report on the research observed that monthly payment was ““strongly criticised””, and it concluded that, "““overall there was a strong feeling that there should be options, or at least an opt-out from the default where required””." Given that the department has emphasised its commitment to a user-centred design for universal credit, surely it should take this very clear message on board. Moreover, the researchers warned that monthly payment is one of a number of potential, "““risks which could jeopardise the successful delivery of universal credit””," and they advised ““mitigating action””. I acknowledge that the Minister's work on budgeting products potentially constitutes such action, but, as I have explained, I am not yet convinced that on its own it will be enough. Surely we have a responsibility to ensure that there is some mechanism in the law to protect people on low incomes from unnecessary hardship, should this action not be as effective as the Minister hopes. I conclude simply by quoting what the noble Lord, Lord Boswell, said in Committee. He said that, "““if this is the nail in the shoe that gets the whole thing discredited because it does not work or gives rise to disturbing ""social consequences, we will have lost the great prize of universal credit that many of us want””.—[Official Report, 10/10/11; col. GC 434.]" I beg to move Amendment 1.