Social Security (Claims and Payments) Amendment (No. 2) Regulations 2006

rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 6 December 2006, be annulled (SI 2006/3188). The noble Lord said: My Lords, the third-party deduction scheme for people on some benefits like income support has existed for many years. Although I agree with the National Association of Citizens Advice Bureaux that it is overdue for revision, that is not the reason I have put down this Prayer to Annul; it solely concerns the regulations. Its objective, as the useful Explanatory Memorandum makes clear, is to permit a facility for credit unions to have recourse to reductions of the income of borrowers who are in receipt of the standard list of social security benefits. This scheme is in pursuit of the Government’s financial inclusion strategy, about which the Minister will remember I spoke in passing on Monday when we discussed the Welfare Reform Bill. I said then and I repeat now that we on this side of the House believe that the Government’s attempt to achieve that is correct, but that often they go about it in a rather dangerous way, and to my mind the regulations are rather dangerous. By definition, benefit recipients are on low incomes and access to mainstream financial services, mostly banks, is not available to them. Far too often they are tempted into loan arrangements with exorbitant rates of interest. I have seen annual percentage rates of over 100 per cent offered. These must be accepted from time to time, otherwise the APRs would come down or the lenders would go out of business. Borrowers, by definition, therefore get into the most horrific financial straits, are pestered by debt collectors and regularly lose their possessions. That leads to what can only be described as a miserable and disastrous life. The last Conservative Government set up the Social Fund to alleviate this problem. Noble Lords will recall that it still continues to offer grants for perhaps a new cooker or the repair of a boiler and—most important in this connection—it makes loans. These loans are repayable either from income or, in extreme cases, by reduction of benefit. The scheme was and is administered by local social security offices and each one has its own budget. It became quite quickly a postcode lottery as some offices had surpluses and others spent their budgets early in the year. One of the few social security measures I was able to undertake unilaterally as a Social Security Minister in Northern Ireland—or as a Social Services Minister, I should say, to give it its technically correct title—was to watch the position in all the offices in the Province and, periodically, to take the money from the under-providers and give it to the offices which had reached their limit. This practice then became commonplace across the United Kingdom. The total budget was always severely limited, as I believe it still is. It is fair to say, however, that I have not had many complaints about it recently. I do not know if the Minister has had any complaints during the few weeks that he has been in his current position. I happened to be listening, rather unusually, to my noble friend Lady Byford winding up the previous debate. She said that periodically we ought to consider whether there is a better way of doing things. I ask the Minister: what consideration, if any, was given to increasing the loan sector of the Social Fund, which is, to my mind, the obvious solution to the problem of achieving more financial inclusion? Would this not have been a far more cost-effective way towards curing the problem than the way the Government have chosen? If so, there would have been no need for these regulations in the first place. Rather than increase the Social Fund budget, the Chancellor decided to do something very different. As part of his social financial inclusion project he set up a small fund of £20 million originally, as I understand it, to be bid for by what he calls third-sector lenders, which are commonly known as credit unions. Perhaps the Minister will update us on this as the scheme should have become live on 1 January. I rather wonder whether it did. These regulations widen the third-party deduction scheme to include non-priority deductions from claimants’ benefits when contracted repayments arrangements have broken down, the object being to encourage low-cost lending schemes and, by so doing, give credit unions a tremendous boost. Clearly they are delighted. What business of the Government is it to enable this rather one-side performance? After all, the Government are supposed to be even-handed—or at least that is what various Ministers have told us over the past eight to 10 years. When the department had prepared the regulations it sent them, as it had to by law, to the Social Security Advisory Committee. That committee was far from enamoured and produced one of the most critical reports I have seen in a long time. Your Lordships’ Merits Committee, to which I am grateful, supported and added to some of its findings. The Government have always admitted that they did not expect a high take-up rate. The committee concluded that, in that case, the set-up costs did not seem to be worth the candle. It used the word ““over-elaborate””, which amounts to the same thing. At the time of the report, officials had estimated that those costs would be about 8 per cent of the scheme. The Chancellor’s response was surprising to say the least—he threw more money at it, so reducing the percentage. I understand that the Chancellor promised in the last Budget and the Autumn statement, which he gave not long ago, that the amount of money will be doubled, which will bring the costs down to about 3 per cent. But this is only if there is a full take-up, which the committee doubted as it had received responses, including those from three potential lenders, one of which was against the proposal. The committee pointed out that there are more than 550 credit unions but that a maximum of 50 would participate and, at that, not until after three years’ time. Those who welcomed the scheme did so only in principle, believing that it would provide adverse incentives for claimants, and for lenders to intensify their efforts to attract borrowers. That cannot, or should not, be what the Government want. We should not be overly concerned with the lenders, however. The people who matter in all this are the borrowers. I agree with the respondents who said that deduction from benefits has historically been allowed only for arrears and essential living costs. Those are: housing costs paid direct to the lender under the DWP’s mortgage interest payment scheme, other housing costs, rent arrears, care home charges, hostel payments not covered by housing benefit, gas or electricity charges, water and sewerage charges, council tax or community charge arrears, magistrates’ courts fines and—a subject no doubt becoming rather dear to the Minister—child support maintenance. Ironically, most of those cover money owed to the Government, either local or central, and the Government have always looked after their own pocket. That is not a complaint; it is a fact. The taxpayer would expect that of government. Since privatisation, though, deductions have continued, as it would be disastrous to cut off supply. However, Citizens Advice points out that there is legislation to prevent that. The argument goes: why then should financial institutions have the same advantages? Borrowing money is not an essential for living. The state is, rightly, the bottom line of insurance for the people of this country, but it should not ever encourage them to be profligate, which the social inclusion fund is in danger of doing. The other point covered by the Social Security Advisory Committee report that I should mention is the level of deduction. I am sorry that the committee’s remarks were so abbreviated in paragraph 5.6. It commented that it would be possible for a non-priority debtor with multiple loans to be paying £1 a month in cases of multiple arrears being handled by a debt collector. It therefore thought that lenders using the maximum allowed amount of £2.90 a week, or 5 per cent of the income support allowance, was too high. The committee did not comment on the fact, or at least I could not find it in its report, that the regulations cover the situation where arrears are due not only to third-party financial institutions but also to housing authorities and privatised fuel companies—perhaps court fines as well. The regulations allow up to 25 per cent of benefit to be deducted by the DWP for onward transmission to these creditors. Even with the pecking order suggested, where the financial repayments come at the bottom of the list, this is far too high. The bottom line that I invite your Lordships to consider is someone on income support of £57.45 a week. That is a subsistence allowance that the Government believe it is just possible to live on. That being the case, the Minister must explain how it is possible to live on only 75 per cent of that—a mere £43.09 a week. Moved, That an humble Address be presentedto Her Majesty praying that the regulations, laid before the House on 6 December 2006, be annulled(SI 2006/3188). 5th Report from the Merits Committee.—(Lord Skelmersdale.)