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Welfare Reform

My Lords, with the leave of the House, I shall repeat a Statement on welfare reform made earlier today in the other place by the Secretary of State, Iain Duncan Smith. The statement is as follows. ““In this House, in October, I set out our resolve to secure a welfare system fit for the 21st century, where work always pays and is seen to pay. Following consultation, a broad positive consensus has emerged—from Citizens Advice to the Institute for Fiscal Studies, and across the political divide. The White Paper that we are publishing sets out reforms to ensure that people will be consistently and transparently better off for each hour they work and every pound they earn. We will cut through complexity to make it easier for people to access benefits. We will cut costs, reduce error and do better at tackling fraud. The detail is published today and the White Paper is available in the Library. Let me take this opportunity to thank all who have helped build and write these reforms. Let me remind the House of the problem that we are trying to solve: 5 million people of working age are on out-of-work benefits; 1.4 million people have been on out-of-work benefits for nine of the past 10 years; 2.6 million working-age people are claiming incapacity benefits, of which about 1 million have been claiming for a decade; and almost 2 million children are growing up in workless households—one of the worst rates in Europe. Some have said recently that it is jobs—not reform—that is important, but in doing so, they miss the point. This is a long-standing problem in this country. We have a group of people who have been left behind, even in periods of high growth. Even as 4 million jobs were created over 63 quarters of consecutive growth, millions of people in Britain remained detached from the labour market. Four and a half million people were on out-of-work benefits even before this recession started. These reforms are about bringing them back in. I want them to be supported and ready to take up the 450,000 vacancies that are currently available in our economy. If we solve this problem, we begin to solve the wider social problems associated with worklessness. The measures in the White Paper get this process under way. They are the first key strand of our welfare reform. By creating a simpler benefits system, we will make sure that work always pays more than benefits. By reducing complexity, we will reduce the opportunities for fraud and error, which currently cost the taxpayer more than £5 billion a year. Work is the best route out of poverty. At present, some of the poorest who take modestly-paid jobs can risk losing £9 or more out of every £10 extra they earn. The universal credit puts an end to some of those perverse disincentives that make it so risky for the poorest to move into work. The highest marginal deduction rates for in-work households will fall from 95.8 per cent to 76.2 per cent. That is the absolute maximum, incorporating both tax and the withdrawal of benefits. There will be a single taper rate of about 65 per cent before tax. That means that about 1.3 million households facing the choice to move into work for 10 hours a week will see a virtual elimination of participation tax rates of more than 70 per cent. With single tapers and higher disregards, the system will be simpler and easier, and people will keep far more cash in their pockets when they move into work. Our guarantee is crystal clear: if you take a job, you will receive more income. Some 2.5 million households will get higher entitlements as a result of the move to universal credit. The new transparency in the system will also produce a substantial increase in the take-up of benefits and tax credits. Taken together, we estimate that these effects will help lift as many as 350,000 children and 500,000 adults out of poverty. That is our analysis of just the static effects of reform. Analysing the dynamic effects is not easy, but we estimate that the reforms could reduce the number of workless households by about 300,000. Let me also provide assurance about the transition. We will financially protect those who move across to the universal credit system. There will be no losers. A far simpler system that operates on the basis of real-time earnings will also reduce the scope for underpayments and overpayments, which we all know can create anxiety and disruption and can prove very difficult to correct. This simplification and reform will help end that problem. As well as reducing official error, these changes will also make life far more difficult for those who set out to defraud the system—they are a small group, but nevertheless they are there. The system will be simpler, safer, more secure, fairer and more effective. That will require investment, with £2.1 billion being set aside to fund the implementation of the universal credit over the spending review period. I have been assisted in this work by my right honourable friend the Chancellor, who has agreed to this investment programme. This is not just expenditure but investment, and investing to break the cycle of welfare dependency is a price worth paying. The universal credit will provide a huge boost to the individuals who are stuck in the benefit trap by reducing the risk of taking work and lifting 850,000 out of poverty in the process. This investment will produce a flow of savings, as a simpler system helps drive out over £1 billion of losses due to fraud, error and overpayments each year. In the wider economy, dynamic labour supply effects will produce net benefits for the country as greater flexibility helps business and fuels growth, particularly in the high street. We are investing £2.1 billion in spending review 2010, and we are seeking a multibillion pound return. That is how we will make work pay, but that is not enough on its own as we also have to support people as they make their move back to work—the two issues cannot be separated. That is why we are moving ahead with our new work programme, which will provide integrated back-to-work support, and that is why we have already started a three-year programme to reassess 1.5 million people who have been abandoned for years on incapacity benefit—something that the Opposition started before the election for the flow of new claims. We are now trialling that programme in two cities in the UK. This is our contract: we will make work pay and support you through the work programme to find a job, but in return we expect you to co-operate. That is why we are developing sanctions for those who refuse to play by the rules as well as targeted work activity for those who need to get used to the habits of work. This work activity will be targeted at those who need it most: those who face the most significant challenges engaging with the labour market. Furthermore, evidence from the work capability assessment—36 per cent of people have withdrawn their application before reaching the stage where they are assessed—underlines the effect this could have on those currently working while claiming benefits. This new contract represents a fair deal for the taxpayer and a fair deal for those who need our help. I commend these reforms and this White Paper to the House””. My Lords, that concludes the Statement.