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Poverty Traps

6.25 p.m.

Earl Russell rose to ask Her Majesty's Government what measures they are contemplating to reduce poverty traps which prevent people getting off benefit and into work.

The noble Earl said: My Lords, Oscar Wilde claimed that he could resist anything except temptation. Today I am trying to do a little bit better. When I tabled this Unstarred Question I did not realise that the Prime Minister's speech of yesterday would be dumped right in my path as I begin the debate. But I have already had one bite of the cherry of welfare to work. The Minister knows my general views on it. I am going to try not to cover that ground again, but instead to cover ground on which there may be rather wider areas of agreement.

The welfare to work programme will obviously not be enough for what any government must now have in mind. As we have been told many times, it is budgeted to take 250,000 people off benefit and into work. But if one compares that with the total number of people on benefit it is not very large. I believe that the total number of people on benefit is still just over 5 million. Therefore, it is a greater number than the total population of Scotland. Of those last published figures, 1,495,000 are classified as unemployed. The Minister and I may agree a suspicion that the figure is a little bigger. So clearly we need to do something beyond welfare to work to encourage people to come off benefit and back into work.

In opposing any particular change to the welfare state, I do not want to make out that everything in the garden is lovely and that there is nothing to change. We are to have tomorrow the launch of the citizens' commission on the welfare state published by Community Care. I had intended to draw on that in some detail, but I was told at the very last moment that since it is embargoed until 12.30 tomorrow afternoon, I can only refer to it in general terms. One finds in the voices of the users a very strong sense that the notion of the dependency culture is a myth; that benefit levels are simply too low to encourage any such thing; and that the demonising of welfare claimants, which goes with that sort of rhetoric, has created a very considerable depth of anger repeated in vernacular language which, even if it had not been embargoed, I could not have repeated in your Lordships' House. The word that occurs over and over again is "trapped". Once on benefit it is simply too difficult to get out.

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In addressing the matter I hope that I shall be speaking with the agreement of some voices within the Government. Yesterday the Prime Minister said,


    "I am asking social security ministers to look at all the key benefits and apply a simple test--do they give people a chance to work or do they trap them on benefits for the most productive years of their lives?"

I hope that he told his Chancellor of the Exchequer that that is an objective that cannot be met without spending a certain amount of money.

I would like to congratulate Mr. Martin Taylor on his appointment to review the poverty trap. I read with pleasure his interview in the New Statesman last week. I could not improve on his words. He said,


    "Alleviation of poverty is a moral imperative, but a system which encourages people to stay in quasi-poverty or just above it, rather than dragging themselves up because it gives them no incentive to climb out, is also failing a moral test".

That is the general framework from which I approach the subject.

How exactly to tackle poverty traps is a highly technical question. I do not expect agreement on every point because there will never be any such thing. I should like merely to make a few suggestions, some of which I hope may be found helpful. If I do not spend time on the issue of a minimum wage, it is because I think that here I would be preaching to the converted; I shall therefore save a few words. If I talk about tax thresholds, I shall be preaching to the converted again. However, there is a difference here between the Government's inclination to a lower tax rate of 10 per cent. and the advice that we have received that taking people out of tax altogether works better. I shall not press that although it could be investigated with more statistical information than I have at my command. However, I should like the Minister to investigate one question or possibly pass it to Mr. Taylor. I refer to whether there is a case for reversing the measure introduced by the Thatcher government of making benefit income taxable. People who are in and out of work and on and off benefit find it a very bumpy ride, especially since tax tends to be demanded in a lump sum in arrears. It also much reduces the amount that they can earn in a new job before they begin to pay tax. That matter would be well worth considering.

Among other possible measures worth thought is one of our proposals. I refer to the merging of income support and family credit into a single low-income benefit so that the abrupt bumps and jumps of the taper can be smoothed out. I would hope that the effect would be rather like that of having a ramp instead of stairs for wheelchair users, especially with passported benefits which would not need all to kick in at the same time. In discussions of those benefits I hear over and over again about the importance of free dental care. The loss of that has caused very strong feeling.

I also recommend--again from our proposed measures--the use of the social fund for deposits to enable the homeless to take up rented accommodation and to begin to look for work. I owe that idea to the Minister's colleague in another place, Mr. John Battle, who on one occasion was going home from Parliament at one o'clock in the morning when he met a young man bedding down

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under the arches at Charing Cross. Mr. Battle asked the young man, "Why aren't you in work? What went wrong?". The man said, "I am in work, but I don't get my first pay cheque for two weeks. I can't afford a deposit, so I am sleeping under the arches and then going to work every morning". Not all of us have the guts to do that; so we might help a little bit there.

I turn now to the tapers and to the combination of tax and the family credit taper, the housing benefit taper, the council tax benefit taper and so forth. According to the Social Security Advisory Committee in 1995--I do not think that these figures are grossly out of date--over half a million people had marginal deduction rates of more than 70 per cent., with a few having deduction rates as high as 97 per cent. If I may coin a phrase, that is squeezing the poor until the pips squeak--and that is a problem that we might do something to stop. A certain amount of easing of the tapers, which are exceptionally steep by international standards, could help, as could some investigation of a mortgage benefit, possibly financed from the abolition of MIRAS which is obviously on its way over a period of time. Homelessness tends to handicap the search for work.

Over and over again the Community Care report reveals strong feelings among people who are trying to care for a sick relative but who cannot get enough assistance to do that and are faced with the prospect of putting their relative into permanent institutional care at vastly greater cost to the state than if they were looked after at home. On that subject, Mr. Dick Francis, who is not famous as a social critic, described the welfare state as guilty of a fish-faced blind eye. He was talking about the lack of help for incapacitated wives. It is a point which may deserve thought.

I have listened a good many times to the noble Baroness the Minister talking about the pressure on the partner of an unemployed person. That is a subject of quite incredible complexity. I was interested in a suggestion for a partner disregard which was made by the Social Security Advisory Committee in its 1995 paper on the role of incentives in the benefit system. That might be a practical way of allowing a partner to go on working without having to pay benefit to Mrs. Cedric Brown if she chooses not to work. I can think of no other way. If the Minister can think of better ways, I shall be pleased to hear about them. It is a thorny problem and I wish her luck with it.

I hope also that there will be some liaison with the Department for the Environment and Transport about the problems of getting to work. Normally the figures that we are given about poverty traps leave out the cost of getting to work but in a number of areas, which are regrettably without any public transport, there is no way of getting to work except by car. Our candidate for Falmouth and Camborne spoke at our last conference with some eloquence about the extreme poverty experienced by people on income support in Falmouth and Camborne who have to run cars or otherwise become unemployable. I should like to think that there would be some consultation with the Department of Social Security before rail lines or bus services are withdrawn. I do not know whether that is possible, but I hope that it is.

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I hope that we shall be able to alleviate many of these problems as we achieve more progress towards the objective of equal pay. It is too early to question the noble Baroness in her capacity as Minister for Women, on which I congratulate her, but I shall be questioning her over the next year or two on how progress towards equal pay is advancing and I hope, as I am sure we all do, for good news.

That is a list of measures worth starting with. A different series of issues is involved when we consider questions relating to single parents. The first speech I made as party spokesman on this brief was on a Motion introduced by the noble Baroness, Lady Turner of Camden, whose contribution I look forward to hearing in a little while, about helping married women to enter the labour force should they wish to do so. That is exactly right. That is my position and will remain so. I understand that single parents are to be "encouraged"; I am very glad that there is to be no compulsion. However, there is a faint potential for ambiguity in the word "encourage" and I hope to hear that ambiguity dispelled.

If we are to consider the real questions about single parents it is well worth looking at the 20 countries studied by Professor Jonathan Bradshaw and others which makes real comparisons possible. His key variables are interesting. He finds that child care costs have the closest relationship with the employment of lone parents; that no countries have low child care costs and low levels of lone parent employment; and that the United Kingdom has the most expensive pre-school child care of any of the 20 countries. That is an understatement of Professor Bradshaw's findings. Only four countries out of the 20 achieved even half the cost of UK child care. Those are startling figures. If one takes simple crude prices, only three countries, Ireland, New Zealand and the United States, have about half our costs. If one calculates on the basis of a proportion of average earnings, one adds Spain. It still means that 15 out of 20 countries studied do not have child care half as expensive as ours. Those are surely striking figures. If I were a Government looking at them I would not try to encourage demand for child care. I would first try to improve supply. I would also look at the hours for which it was available.

I was extremely glad to hear in the Prime Minister's speech that the Government were going ahead with the policy of making schools open after hours. These are our clothes and I am delighted to see them worn. I am also delighted that the Prime Minister says that much more can be done to make work and family life compatible. That is something I will be urging on the noble Baroness but I am sure that she will not need it. One keeps hearing--it must stop--about people who are dismissed from their employment for taking time off to care for sick children. I understand that this can be very inconvenient to an employer, but in the world as it is coming to be, if that happens we may not have a labour force at all. That would be even more inconvenient to an employer. In particular, I hope that the Minister for Women will make it her business--I think that it should be--to ensure that men are not dismissed from employment for taking care of sick children, which is

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everybody's business, and that at least, perhaps by way of guidance, nobody so dismissed shall be found guilty of voluntary unemployment.

In addition to these child care problems, single parents have all the same ordinary bottlenecks that others face in trying to get off benefit. They have all the same problems of tapers, especially with housing benefit. It is also shown by the comparative study that we are one of only eight countries among the 20 where a person pays full rent and local taxation at half average earnings. The replacement rate as one comes to income out of benefit is the highest in all the countries studied. Those seem to be the real matters that keep single parents out of work. If one does not tackle those all the encouragement in the world is worth nothing. If one encourages single parents into work without relieving the bottleneck it is like squeezing a tube of toothpaste without remembering to take off the top. If I can assist the Minister to take off the top I shall be happy to do so.

6.44 p.m.

Baroness Turner of Camden: My Lords, I apologise to the House for the fact that because I arrived late today I did not put down my name, but I gave notice that I intended to speak. I welcome the opportunity to participate in the debate initiated by the noble Earl. I hope that the new Government will address the problems to which he has referred. Although everyone appreciates that it is not possible to do everything at once obviously expectations are very high, particularly among those concerned with poverty and its effects upon some of our fellow citizens.

I welcome the commitment in my party's manifesto to look at the interaction of the tax and benefits systems and to try to promote work incentives. The noble Earl has dealt with that in detail in his opening speech. This is important in the effort to deal with poverty. No one supports what has become known as the dependency culture. I am inclined to share the noble Earl's view that it is rather a myth. Nevertheless, the proposals to assist lone parents back into work should be welcomed. However, there are problems which may be quite expensive to solve. Often children of single parents live in circumstances where relationships have become broken, often violently. It is important for such children that there should be stability. Lone parents should not therefore feel that they are being compelled into work--often work that may be unsuitable and badly paid. Individual circumstances must be taken into account. After all, we still await the introduction of the minimum wage. Until that is established we are not likely to be able to tackle the culture of dependency. The minimum wage is an important item in the whole argument. Incidentally, I welcome the evidence that the Government are getting on with it and have already appointed Professor Bain, formerly head of the London Business School, to head the Low Pay Commission.

There are at present considerable barriers that prevent lone parents from taking work. Chief among them is the shortage of affordable child care. Moreover, most employers fail to take an enlightened approach to the irregular hours often necessary to provide parenting at an acceptable level. Employers should be encouraged to

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take a more positive attitude to parenting. Some enlightened employers have for years provided a child minder's allowance to staff with parenting responsibilities. Such initiatives should be encouraged; and certainly such so-called perks should not be taxed. Most single mothers are not so by choice. Some have become so because their husbands have left them or they have had to get out of violent relationships. Despite the existence of the CSA, maintenance payments are often unreliable. The previous Government indicated an intention to abolish one-parent benefit and the lone parent premium in means-tested benefits for new claimants from April 1998. I very much hope that the new Government will not proceed with the proposed cuts. One parent benefit has the advantage of being non-means-tested and therefore is similar in that respect to child benefit. It is easy to administer and provides security of income.

There is already a substantial amount of evidence to indicate that the levels of benefit are themselves inadequate. The removal of one parent benefit lends support to the notion fostered by the previous Government that single parents are responsible for all kinds of social ills, from the soaring crime rate among young people to inflated welfare bills to be paid ultimately by citizens who have managed to live in more traditional and conventional family circumstances. Of course, this is unfair. Many single women struggle hard to bring up their children, often with little assistance. Most can be regarded as low income families with all that that means in terms of poor diet, as highlighted in the paper published recently by the National Food Alliance. There are now about one million single mothers, most of whom have not willingly sought their underprivileged status. I therefore welcome the Government's stated determination to help these women. I believe that provided child care is available and women do not feel pressurised into unsuitable and low paid work the new proposals will be of assistance to many. But there will be transitional problems, and that is why I make a plea for the retention of one parent benefit. Good quality care is not cheap, particularly in this country. Many single mothers want to work but are caught in the benefits and child care trap. The Government have raised hopes of a new beginning and a more enlightened and humane approach. I await with interest the Minister's response.

6.49 p.m.

Lord Henley: My Lords, my noble kinsman Lord Russell has provided a fairly meaty dish for the Minister to get her teeth into when she answers at the end of this short debate. I shall be relatively brief and try to keep my remarks to the 15 minutes recommended by the Companion to the Standing Orders.

I start by offering my apologies to the noble Baroness for the absence of my noble friend Lord Mackay of Ardbrecknish. The noble Baroness missed him on her first outing, but I am sure that in due course both she and my noble kinsman will have opportunity aplenty to exchange arguments with my noble friend, as they have done from different parts of the Chamber over previous

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years. For the present, the noble Baroness will have to make do with me. However, she and my noble kinsman will remember that when they came to their social security briefs--the noble Baroness sitting where I am today--I was then, if I may put it this way, the "whipping boy" in social security. Therefore, I offer my commiserations and my congratulations to the noble Baroness on the position that she holds.

I also offer the noble Baroness sympathy. She and her party will find the whole task of tackling the growth in social security expenditure much harder than the pious statements of Opposition--that is, of course, if they really are committed to controlling growth in the social security budget. I remember that when some time ago my right honourable friend Peter Lilley, then Secretary of State for Social Security, published the document entitled Growth in Social Security Expenditure, the noble Baroness was somewhat dismissive and felt that a growth in the economy would take care of most of it. I should like to look at her precise words on some of those occasions because they might make fairly interesting reading.

The real question before us, as put by my noble kinsman, is just what we can do to encourage people back into work, whether by means of making adjustments to the taper or whatever. The question that we must ask, and the answer that we must have, is exactly what steps the party opposite is contemplating not only to reduce the poverty trap but to reduce social security expenditure over a wider front.

I do not believe that the noble Baroness and the Government can complain that they have not had time to address these matters. It is some five years since a commission on social justice was set up under the chairmanship of the noble Lord, Lord Borrie. It reported in 1994, but we do not seem to hear much about it now. It would be interesting if the noble Baroness could tell us how that report has influenced their thinking and to what extent the ideas put forward in the report will be developed by the party now in government.

I suppose that we must turn to the Government's manifesto, which was put forward before the election, to see exactly what they are proposing in terms of social security reform. The manifesto is fairly thin on these matters. We obviously hear about welfare to work and how a welfare-to-work budget will be introduced within two months of the general election. We have heard that that will be met and there will be a Budget on 2nd July. Therefore, I suppose that it would be right for us to wait until July to hear the details of the so-called "windfall tax" in order to see how it will operate and exactly what it will do. From my portfolio in education and employment, together with my noble friend in social security and others representing the Treasury, I look forward to debating those matters some time after 2nd July.

There are other references within the manifesto. We hear about an imaginative welfare to work programme to put the long-term unemployed back to work and to cut social security costs. However, again, there are no details whatever. We also hear about putting lone parents into work and how the minimum wage will

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remove the worst excesses of low pay and be of particular benefit to women while cutting some of the massive £4 billion benefits bill by which taxpayers subsidise companies which pay very low wages. If the national minimum wage is set at a relatively high level it will cost jobs. That is a matter which the noble Baroness must address and which the party opposite must deal with.

As regards the imaginative welfare-to-work programme and exactly what is proposed, the noble Baroness will remember that on 19th May we had an exchange on those matters. The point that my noble friend Lord Mackay of Ardbrecknish wished to have addressed was the extent to which the stick or the carrot would be adopted in terms of the welfare-to-work programme. I believe that my noble kinsman is very "unkeen" on the stick and would like to see much more carrot. During the weekend we heard that major announcements would be made about the degree of compulsion that would be introduced into a welfare-to-work programme. In the Prime Minister's announcement on Monday, we heard nothing new whatever. The Daily Telegraph stated that it was all "motherhood and apple pie".

According to those interviewed by the Daily Telegraph and others, it is pretty clear that simple encouragement and tinkering with the taper will have little effect. Therefore, can the noble Baroness expand a little on what is proposed and say to what extent there will be either a stick or a carrot, or both? In reply to my noble friend Lord Mackay on 19th May, the noble Baroness, Lady Blackstone, said:


    "it is desirable to ensure that all young people who are currently unemployed, particularly those who have been unemployed for a long period of time, should be not just encouraged but given a little carrot and perhaps a tiny stick to make sure that they benefit from what is being provided".--[Official Report, 19/5/97; col. 144.]
It would be beholden on the noble Baroness to tell us just how much there will be a stick and to what extent there will be a carrot.

We accept the basic premise put forward by the party opposite on a number of occasions, as we did when we were in government, that getting people into work and off benefit will in the long term do much to reduce the welfare bill. That is why we are very proud of our record on unemployment during the past few years. We saw a steady fall in unemployment against all the trends in Europe and similar countries. We saw falls over three years, starting earlier in the economic cycle than previously and coming down much faster. I believe that all of that is now at risk. We have the Government's commitment to sign up to the social chapter, which in some way will not be binding--they will pick and choose just which bits they want, but I am not sure how that will be managed. We also have their commitment to a minimum wage, which everyone accepts will cost some jobs although there are arguments about how many. Even the new chairman of the Low Pay Commission, Professor George Bain, admits that he will be surprised if there are not some job losses. Can the noble Baroness tell us just what is proposed? If there is no compulsion, how will single parents be encouraged

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back to work? Yesterday, some people on the Ellesmere Estate were saying that they would go back to work only for a figure in the region of £500 a week.

I wish to ask about reducing the so-called poverty trap, which in effect means lengthening the taper to income-related benefits. I believe that the noble Baroness must accept that that would necessarily increase the number of those in receipt of income-related benefits receiving relatively small amounts. It would, therefore, dramatically increase the administration costs of all income-related benefits. As the noble Baroness will be well aware, the administration costs of income-related benefits are much higher than all others. In addition, it would do much to increase the overall budget. If not that, how will encouragement work? What kind of compulsion will there be? Will there be a much greater degree of compulsion?

I believe that all of that is far too vague. There is no sign that any of it means anything or would yield anything. I very much hope that the noble Baroness can offer some degree of light when she comes to answer.

7 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, I am most grateful to the noble Earl, Lord Russell, for giving us the opportunity to debate this important topic today, and to the noble Lord, Lord Henley, for his kind remarks. I am intrigued that the noble Lord, Lord Mackay of Ardbrecknish, found himself with an alternative obligation but I understand why he might find that more attractive.


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