My Lords, I thank the Minister for his introduction of this order and the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Thomas of Winchester, for their contributions. The noble Lord, Lord Kirkwood, and I gather around this time every year—sometimes to decreasing effect, it feels—and we miss my noble friend Lady Lister, who is usually with us on these occasions. In the absence of her enormous knowledge, I will do my best to fight the good fight for these Benches.
I reassure the noble Lord, Lord Kirkwood, that he is not out of order because the order increases the disability premium and some elements of working-age benefits. Therefore his area of comment is wholly in order for addressing these questions today. It was a comment in which I have an interest because I am about to do the same thing.
While obviously not objecting to the 1% uprating of the benefits that are covered, the triple lock or in-line-with-earnings increases as described by the Minister, we have serious concern about the increasing impact of the Government’s approach to benefit uprating on the millions of people who rely on benefits to look after themselves and their families. The real action here, as the noble Lord, Lord Kirkwood, pointed out, is happening offstage. It applies to the many benefits that should be on this list and are not.
The summer Budget 2015 listed a series of working-age benefits that would be frozen for four years from 2016-17 to 2019-20. We should remember that they had had only 1% uprating from 2013 and that there was the massive effect, described by the noble Lord, Lord Kirkwood, of the shift from RPI to CPI as the measure for increasing benefits. That list includes child benefit, JSA, ESA, income support, housing benefit under women’s state pension age, LHA rates, child tax credit, working tax credit, universal credit and bereavement support payment. Many of these benefits affect working people and working families, but they all affect people who are dependent on benefits to survive. It is good that the disability and other premiums paid with these benefits are being increased by 1%, and I am glad to see that.
The freeze to the other levels of social security payments are having a detrimental impact on those who depend upon them. Between 2008 and 2014, the prices of essentials rose three times faster than wages. Combined with the period of 1% uprating and then the freeze, low-income households have seen a significant deterioration in their income. Now that inflation is starting to pick up, we need to be reassured by the Government about how they are going to ensure that Parliament can understand the degree to which households are protected from the consequences of those changes in ways that we could reasonably expect them to do.
The 1% uprating is based on the rate of CPI prevailing in the year to September 2016, which was reported at 1%. However, since then, inflation is clearly on the rise. Last week, we saw the release of the latest figures which showed that the consumer prices index rose by 1.8% in the year to January 2017. Last week we also saw the Bank of England inflation report which said:
“In the central projection, conditioned on market yields that are somewhat higher than in November, inflation is expected to increase to 2.8% in the first half of 2018, before falling back gradually to 2.4% in three years’ time”.
As the Resolution Foundation pointed out in a report entitled Under New Management in November 2016, the effect of rising inflation is that this policy is saving the Treasury rather more money than it expected. The report estimates that rather than the £3.6 billion the policy was due to save the Exchequer by 2020-21, the savings would rise to £4.6 billion. Can the Minister tell the Committee whether that £4.6 billion figure is accurate
and, if not, what is the value of the savings now estimated to be according to his department or the Treasury?
On the other hand, the effect of these changes on households in receipt of benefits is also far greater than Parliament expected at the time when the decision was made to freeze benefits, and people on the lowest incomes are least able to withstand the effects of inflation because they have the least disposable income and in most cases they have little or no savings to depend on as a cushion. That is why Parliament has traditionally protected them from these risks by inflation-proofing benefits. As the IFS puts it:
“This policy represented a significant takeaway from a large number of working age households. But it also represented a shifting of risk from the Government to benefit recipients. Previously, higher inflation was a risk to the public finances, increasing cash spending on benefits. Now the risk is borne by low-income households: unless policy changes higher inflation will reduce their real incomes”.
That point was also made by the noble Lord, Lord Kirkwood. The IFS also points out that, as of last March,
“the freeze represented a 4% cut in the value of those benefits … relative to previous plans”.
Last October, the IFS, based on its inflation forecasts at that point, produced some other observations on the impact on claimants, saying:
“As a result, 11.5 million families were expected to lose an average of £260 a year, saving the government £3.0 billion in 2019-20. Given the latest inflation forecasts from the IMF, the policy now represents a 6% cut to affected benefits. The same 11.5 million families are now expected to lose an average of £360 a year (£100 a year more than expected in March), saving the government £4.2 billion in 2019-20 (i.e. an additional £1.2 billion on top of what was expected back in March). Greater losses are found among families—typically those on lower incomes—who receive more in benefits”,
so,
“8.3 million families affected now expected to lose an average of £470 a year”.
The Minister might claim, truthfully, that his party had a manifesto commitment that the working-age benefit system should be made less generous over this Parliament, but as the IFS pointed out,
“it is hard to see why the appropriate size of cut should be arbitrarily determined by the impact of movements in sterling on prices”.
Quite, but if the Minister does not want to listen to the Resolution Foundation or the IFS, or the noble Lord, Lord Kirkwood, or the noble Baroness, Lady Thomas, or, unaccountably, even me, perhaps he might be persuaded by the following comments, reported in the Independent from another parliamentarian:
“When the original benefit freeze was set it was set against an estimate of a much lower rise in inflation … Therefore I’m sure the Treasury will want to look at to keep that under review because the purpose was not to have such a dramatic effect on incomes against a forecast of rising inflation … I’m sure the Treasury will want to look at that and keep that under review so that doesn’t actually happen and make it adverse in a way that it was not completely intended”.
That was Iain Duncan Smith, speaking to an event in Westminster, reported in the Independent on 8 November last, and that was before inflation hit the heights that we saw last week.
My questions for the Minister are simple. First, can he tell the Committee the latest estimate of the savings to the Exchequer of this four-year benefit freeze, as against CPI uprating, over and above the amount originally scored? Secondly, how big would the gap have to be between projected and actual impact on claimants of this freeze before the Government would revisit it? Finally, to echo the noble Lord, Lord Kirkwood, whom I commend for his determination to come back to this matter on behalf of all parliamentarians every time we discuss it, what is the mechanism for Parliament to revisit the issue and be assured of the adequacy of social security benefits in the absence of any appropriate annual mechanism?