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Lord Rix: There are Members of the Committee on all sides of this Chamber, and those who declare no political affiliation--myself included--who profoundly disagree with the Government's policy with respect to restricting incapacity benefit to recent contributors. Like the noble Lord, Lord Higgins, I, too, am sad that such an important debate is taking place so late at night.

Over the various stages of this Bill we have heard many detailed expositions of the problems relating to this clause. I shall summarise the three aspects of the clause which are of most concern to me and indeed of those who have written to me on this matter over recent months. First, this measure does not represent a strengthening of the contributory principle; it represents an erosion of it, hitting hardest those who worked for a long period of time before unemployment and those who have intermittent work patterns for other reasons such as caring or looking after children. At Second Reading I gave an illustration of the way this change would impact upon a carer I know.

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Secondly, this rule does nothing to help people with disabilities back to work. Worse still, the cuts will penalise those trying to go back to work--the very opposite of what welfare reform should aim to achieve. The Government claim that they wish to reduce the inactivity rate among older workers. That is a measure which I am sure bears no reflection on your Lordship's Chamber, particularly in this latter Session. However, I should like to explain briefly the way in which the effects of this clause run counter to that claim.

Many people, particularly towards the end of their working life, find their health giving way and consequently their national insurance record becomes fragmented. Currently a year's full national insurance contribution at any one time during a working life ensures eligibility to incapacity benefit. People whose health is giving out know, therefore, that they can keep trying for work in the knowledge that no matter how chequered their work record becomes, their entitlement to incapacity benefit remains. Not so under the proposals in this clause. A person will need to have a fully paid contribution record during one of the previous two years before claiming benefit. Claimants will rapidly become aware that the only way to guarantee incapacity benefit is to give up aspirations to work and to claim benefit as quickly as possible as soon as one's health begins to deteroriate.

Finally, to my mind this clause does not help to restore incapacity benefit to its original intention or restore the link between benefit and work; rather it takes away a contributed benefit from people who may have worked for many years. As something of a double whammy the fallback benefit, the severe disablement allowance, is being abolished later on in this Bill, consigning those who may have worked for 40 years or more but who happen to become sick at the wrong time to a future on means-tested benefits.

The Minister may be satisfied that with this situation on the ground that it is theoretically possible for some individuals, although undoubtedly fewer of them, to receive broadly the same amount of money from the state via means-tested income support. It is worth remembering that not everyone will be eligible for income support. A working spouse is sufficient to prevent that. Furthermore, the means-tested provision is something from which we spent nearly 30 years trying to escape because benefits of that kind carry with them the very disincentives which prompted the need for welfare reform in the first place.

11.30 p.m.

Earl Russell: Any amendment on a matter to do with disability which comes before us in the names of the noble Lords, Lord Ashley of Stoke, Lord Morris of Manchester and Lord Rix, is one to which we on these Benches would listen very seriously indeed. When they say exactly what we thought already, we join with them with alacrity. We have more reasons for supporting the noble Lord, Lord Ashley of Stoke, than I am going to give to the Committee at this time of night.

I shall mention one only. This clause leaves out altogether those with earnings below the national insurance lower earnings limit and therefore with no

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contributions. Many people make do with a portfolio of part-time jobs, showing a great dedication to the principle of work and making a living somehow, but not building up a contributions record. An extremely high proportion of those people are women. This clause is severely discriminatory in effect.

Baroness Hollis of Heigham: I was particularly startled by the noble Earl's last point. I am slightly out of order on the comments I was going to make. I make it clear that already 30 per cent of claimants for invalidity benefit are women. Over the next 15 years or so, we expect it to be about 50 per cent. So in saying that it is discriminatory against women I wonder whether the noble Earl is on the right clause. I assure him that by virtue of the national minimum wage an extra 250,000 people, mostly women, will be going over the lower earnings level and will be credited into the system. As a result, they will be entitled to incapacity benefit when they are not at the moment.

Whatever else is wrong with this clause in the view of the noble Earl, it is certainly not true to say that it is discriminatory against women. As I have said, women will form the biggest growth in the number of claimants partly because of the ending of the reduced married woman's contribution and in future because of the national minimum wage. I hope that the noble Earl will accept that point at least, even if our minds do not meet on other points.

Earl Russell: I accept that the minimum wage has made the position less discriminatory than it was before and I welcome that.

Baroness Hollis of Heigham: I am grateful to the noble Earl.

I go back to the substantive point. The Committee has expressed anxieties about Clause 57 which amends the entitlement conditions for incapacity benefit to require payment of some national insurance contributions in one of the previous two tax years.

The Government's proposals are based on the clear principle that there should be a link between incapacity benefit entitlement and recent work. However, the contribution conditions are a particularly complex area of the benefits system and it may be helpful if I begin by clarifying some keys points about the practical effects of the Government's approach.

First, as I am sure Members of the Committee know well, the new rules do not affect current claims. Therefore, there is no question of benefit being taken away from existing recipients who remain on incapacity benefit.

More importantly, future claims which link back to a previous period of entitlement will also be unaffected. So people who leave incapacity benefit will be able to do so with a guarantee that if they have to return within the linking period, which this Government extended from eight weeks to a year for people in work, they will be able to do so without having to resatisfy the contribution conditions. To reinforce this we also intend to make a general exemption for people on IB in the

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previous tax year. This will help people who try to work for more than a year and find that they cannot reclaim IB immediately because their contributions are in too recent a tax year.

The arrangements will ensure that there is no question of people trying to go back to work and being unable to get back on to IB because they have had no opportunity to re-establish their contribution record. That will be particularly helpful to people with intermittent or deteriorating conditions, and other people whose prospects of sustained employment are poor.

When people are in work they will, in any case, not have to work for all that long in order to satisfy the new requirements. As now, contributions on earnings equivalent to 25-times the lower earnings limit, currently £66 a week, will suffice. This is equivalent to just four weeks' earnings for someone on average male full-time earnings, or 12 weeks for someone on the national minimum wage. That period of work need not be continuous. So, here again, there is recognition of the needs of people with broken work records and intermittent health problems.

Where someone has met the minimum requirement for paid contributions in one of the previous two tax years, he can have been unemployed for the rest of the time and still qualify. Because of the time lag between tax years ending in April and the benefit year starting in January, it will be possible, as my noble friend Lord Ashley said, for some people to qualify for IB as long as three and a half years after leaving work. So there is no question of people losing eligibility for IB after a short period of unemployment.

The Government recognise that there are situations where it is unreasonable to expect people to have worked and contributed in the previous two tax years. The reforms in Clause 59, which will enable young disabled people to claim IB without having to satisfy the contribution conditions, are the clearest example in that respect. We have also made it clear all along that we shall maintain the status quo for carers. We shall provide in regulations for carers who currently qualify for IB after receiving invalid care allowance to continue to do so on the same basis as now--that is, through contributions paid in any tax year. I should emphasise that it will not be necessary for the person to have been working immediately before he or she started caring.

Therefore, to sum up, the Government's proposals include full protection for existing beneficiaries and people who go off IB for periods of a year or more. People will be able to qualify on the basis of just 12 weeks' work at the minimum wage and on the basis of work done as long as three and a half years ago. The current position of ICA recipients will be maintained.

However, the Government's proposals will not extend IB to groups other than the young disabled who are not eligible under the current rules. There is no doubt that the contributory system is complex. Indeed, some noble Lords may not realise exactly which groups do or do not currently qualify. I should explain that there are in fact two national insurance contribution conditions for

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IB. The first, which Clause 57 amends, requires contributions to have been paid in one tax year. Currently, that can be any tax year, however long ago.

The second contribution condition for incapacity benefit requires contributions or credits equivalent to 50-times the lower earnings limit in both of the previous two tax years. Clause 57 leaves this position unchanged. People will continue to be able to satisfy this condition by credits alone; but, as now, if they have neither paid contributions nor received credits in both of the previous two tax years, they will not qualify. In this respect, the Bill does not alter the position of groups whose circumstances do not attract credits, including most people who are in work but earning below the lower earnings limit.

There was some confusion in the other place about the position of mothers with children who receive HRP (home responsibilities protection) for pension purposes. Perhaps I may make it clear that HRP is not the same as national insurance credits. Mothers with children cannot use it to claim IB. In order to get credits, mothers need to meet other requirements, such as signing on as unemployed, or being in receipt of statutory sick pay or ICA.

Because the second contribution condition already imposes a requirement which relates to the two most recent tax years, it is already possible for someone to have contributed in earlier years but fail to qualify for IB. It can be possible under the current rules for someone to have paid contributions for 30 years but fail to qualify due to failing the credit test of the past two years. That is not a situation created for the first time by Clause 57, as perhaps some noble Lords may believe.

As there has always been a second contribution condition, albeit not quite in the current form, it might even be said that the possibility of someone paying contributions for many years and then failing to qualify for benefit was foreseen by Beveridge. Certainly the founders of the national insurance scheme saw a distinction between retirement pension, where entitlement builds up over many years, and what used to be called short-term benefits for sickness and unemployment, which depended on more recent tests of eligibility. Of course the basis for that distinction is that whereas everyone needs to provide for their eventual retirement, benefits for unemployment and incapacity are intended to provide for people who have recently been working and whose income has been interrupted.

I know that my noble friend Lord Ashley found it difficult to accept that IB and its predecessors have always been intended as a replacement for earnings from recent work. I remind him--I am sure he knows this--that under the National Assistance Act 1948 the full rate of sickness benefit was not payable unless there were a certain number of contributions or credits in the last complete contributions year. That rule changed over the years; none the less since 1948 the contribution tests for short-term contributory benefits have always included a test of recent contact with the labour market. Over time, this test developed into what is now the second contribution condition which required contributions or credits in both of the two most recent tax years.

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Therefore, it has always been the case that people who have paid contributions in the past but have no contributions or credits in the two most recent years will be unable to qualify for incapacity benefit.

The debates when IB was introduced in 1995 did not focus on the contribution conditions because the previous government decided simply to carry forward the existing rules for sickness benefits. I hope that I have established that it has always been the case that IB and its predecessor benefits were always intended as a replacement for earnings from work. It follows therefore that IB is not intended for people who are in other situations. Yet at the moment half of those on IB came on to benefit from unemployment. The way the existing contribution conditions work mean that a person could have been signing on as unemployed for many years but would still qualify for IB as long as they had paid the minimum amount of contributions in just one year before becoming unemployed. I know that my noble friend does not like this example, but currently it is possible for someone to do six months' work and then be unemployed for 20 years and still qualify for IB. We do not believe that that was in the expectations of Beveridge when the system was first set up. It has not been the expectation since and we do not think it right for this to continue.

That is not to say--I wish to emphasise this--that an unemployed person who becomes sick should be left without income or support. But in those circumstances the right benefit is not incapacity benefit which is always meant to be related to recent experience in the labour market; the right benefit is income support which already goes to many thousands of people who satisfy the medical test of incapacity but not the contribution conditions. In fact, most of those who do not satisfy the new contribution conditions and were previously unemployed will already be getting income-based JSA which is paid at the same rates as IS and therefore to that extent has the same qualifying income tests. They will also be able to qualify for the disability premium in due course. IS with a disability premium of £73.30 a week is more generous--or certainly higher in income--than basic long-term IB. Some 70 per cent of those who fail to satisfy the new contribution condition will get IS rather than IB and will experience no financial loss.

The noble Lord, Lord Higgins, asked me what sort of savings we envisaged. The savings for the first year are expected to be £25 million and in the third year £60 million. But these proposals are not about cutting expenditure because spending on incapacity and disability benefits will continue to rise by more than £2 billion in real terms over the life of this Parliament.

As I said at the beginning, the Government's approach is based on the clear principle that there should be a link between IB and recent work, as was envisaged by Beveridge. That link has been lost in recent years, primarily because of the growth in long-term unemployment which Beveridge, frankly, did not anticipate. Restoring that link is an essential aspect of the reform of the benefits system that the Government are determined to achieve. Within that framework safeguards need to be made, and are being made, for

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certain groups. We believe that the overall approach is right in principle and, despite what has been said tonight, we do not believe that it will place unreasonable barriers in the way of people establishing their entitlements. We believe that it is right that IB should be related to recent work, and that is what Clause 57 will ensure.

11.45 p.m.

Lord Ashley of Stoke: I am grateful to my noble friend for responding to some of the points raised in the debate. She has heard the unanimous condemnation of Clause 57 that has been expressed on all sides of the Committee. I simply repeat the situation I have already mentioned--I am being quite frank with the Government, quite honest with the Committee--the Government must reconsider and think again. If they do not, this amendment will be brought forward on Report and we will call for a Division in the House.


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