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Lord Campbell of Croy: My Lords, the three amendments are grouped together including Amendment No. 133, which is to leave out the whole clause. I shall address my remarks to Amendment No. 133. The debate was begun with clarity by the noble Lord, Lord Ashley, as one would expect. When this matter arose in Committee the Government claimed that the Beveridge proposals were linked to recent work and that that was the reason why they were now making it difficult for people who have been unable to make contributions to national insurance for two years.

The noble Baroness, Lady Hollis, did not give a full answer to the noble Lord, Lord Ashley, at that stage or answer the question as to where in the election manifesto the proposals appeared.

There is a geographical consideration to which the noble Earl, Lord Russell, made reference; namely, that there are parts of the country where it is exceedingly difficult to find work, particularly for a disabled person. Of course, it is much easier to find work in other parts of the country. That situation makes the clause objectionable.

There are two other considerations. As they grow older, some disabled people become more infirm but they try to stay in work. They should be congratulated on that. But it has to be part-time or low paid work. That means that when they retire altogether they will not have made recent contributions to national insurance and not enough to meet the requirements contained in this clause.

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The other point is fraud. The noble Lord, Lord Morris, touched on that. It is clear that there is very little fraud in the disabled sector. Most of the fraud connected with benefits is concerned with able-bodied people, employment and housing benefit. It is not concerned with the disabled. That has been confirmed by the noble Baroness, Lady Hollis, in this House on previous occasions.

One of the troubles was a misunderstanding caused by an article in The Times of 15th January last year by the Prime Minister. It has been quoted by the noble Lord, Lord Morris, and I shall point it out again. There were two consecutive sentences in the article. The first was,

    “We spend more on disability and incapacity benefit than we do on the entire schools system".

The next sentence was,

    “Benefit fraud, estimated at £4 billion a year, is enough to build 100 new hospitals".

That is a non sequitur. The first sentence refers to disability benefits whereas the second refers to all welfare benefits put together. The noble Baroness knows that we on this side of the House are in favour of trying to reform the system. However, there is not much to reform as regards fraud and the disabled.

When the noble Baroness replied at Committee stage she referred to “recent work" being envisaged in the Beveridge proposals. That did not completely answer the noble Lord, Lord Ashley, concerning the intentions of the 1948 legislation. I remember that time very well. I was working in Whitehall from 1946 to 1949. I remember the legislation being prepared on the Beveridge Report which mainly introduced the new national insurance system. I was not in the department in Whitehall which was primarily involved, but friends and contemporaries of mine were. Whitehall was very small at that time and most of us had been in the Armed Forces during the war. We were in touch with each other and we were interested in what was being done.

From that experience I disagree with the noble Baroness who said in Committee on 13th July of this year, at col. 313 of Hansard, that Beveridge did not anticipate long-term unemployment. Of course he hoped that his national insurance system would prevent it. However, the whole basis and purpose of his proposals were to avoid the severe unemployment of the 1920s and 1930s. That was what inspired him to come forward with his proposals. The benefits then proposed anticipated loss of work and being able to help people when that happened. But the proposals were not hidebound as has been suggested. I trust that the Government will reconsider Clause 58 very seriously. If not, I shall oppose it.

Lord Davies of Coity: My Lords, I do not doubt for one minute the sincerity expressed by both my noble friends Lord Ashley and Lord Morris on this matter. I do not doubt the sincerity expressed by the noble Lord, Lord Rix, and the noble Earl, Lord Russell, but I do want to test the depth of sincerity of the noble Lord, Lord Higgins, and that of Members on his Benches.

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Only last week in Blackpool David Willetts, the Opposition spokesman for social security, said,

    “Labour's failure on welfare is first and foremost a catastrophic failure of financial control. That is why the first Conservative pledge I give this conference is that we will cut social security spending as a proportion of our national income. We did it before; we can do it again; we will do it again".

But the facts are these. The Tory Government increased welfare spending by 90 per cent in real terms when they were in office, despite making cuts in benefit entitlement. The reason for the increase is that mass unemployment resulted during their period in office. The noble Lord, Lord Higgins, might say, as he did, that it is a question of entitlement because of contribution; but that did not seem to be the philosophy in 1986 when the Conservatives were cutting SERPS for widows--which would have occurred next year if we had not altered the situation on Monday this week.

If David Willetts is right--and he is the Conservative Party's official spokesperson--I ask the party opposite how it justifies the enormous cost which will result, contrary to his view, from the amendments which it is tabling to the Bill.

The Earl of Longford: My Lords, I do not propose to become involved in a discussion about the hypothetical views of Sir William Beveridge, although I worked with him for three years as his personal assistant when he was drawing up the main report some years before our much esteemed Prime Minister was born.

For over half a century, I voted loyally for the Labour Party whether they were in government or opposition, with a few exceptions. I often have to come along nowadays and ask, “which is the Labour Lobby"? I usually follow along obsequiously. But this time I am afraid that is not quite the case. In my eyes, my noble friend Lord Morris is unlikely to be wrong. Nor for that matter is the noble Lord, Lord Ashley, whom I of course much admire. I had the honour of carrying Alf Morris's famous Bill through this House nearly 30 years ago, and I have never yet found him to be wrong. If anyone should ask me whether I believe he knows more than the present Government, or any government, about the disabled, the answer is yes, I believe that he does. So I am afraid that I shall vote for the amendment of my noble friend Lord Morris.

The Duke of Buccleuch: My Lords, I should first declare an interest inasmuch as I am a recipient of disablement allowances of various kinds. I am also president of RADAR, and previously its chairman, and so I have been much involved in what has been going on behind the scenes in negotiations. I am saddened that the Minister in the other place in charge of the Bill is the Member of Parliament for my former constituency--what was Edinburgh North. Had I produced a measure such as this in my day I would have been literally savaged by my constituents.

We have gone so far down this road, and now, looking at these three amendments, I have great sympathy for the first two of them: to try to find a

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compromise, if it is possible to do so, on the very practical grounds that when the Bill goes back to the other place, if we simply delete this clause it will be reinstated; whereas if it goes back amended, there is some possibility that those sensible people in the other House will agree that those changes are better than nothing. Therefore I greatly hope that it will be possible to test the opinion of the House on the first two amendments before deleting the clause altogether.

6.15 p.m.

Baroness Hollis of Heigham: My Lords, the proposals contained in this clause have been debated thoroughly and I understand the issues expressed so eloquently by my noble friends--and they are my noble friends; it is not just a formality, but sincerely meant--Lord Ashley and Lord Morris. My right honourable friend the Secretary of State and I respond to the spirit of co-operation in which my noble friend has put forward various amendments.

However, the Government believe that their proposals are right. We remain convinced that a proposal for a contribution test based broadly on the two most recent tax years is largely right, although obviously--this has been made clear--my right honourable friend the Secretary of State in the other House is reflecting, both in the light of your Lordships' discussion and that elsewhere, on whether the two most recent tax years is the most appropriate figure. My noble friend's suggestion of a test which requires either contributions in one of the last seven years or 10 years' contributions in total would largely perpetuate the current position whereby incapacity benefit goes disproportionately to people who were previously unemployed.

As has been said tonight, and it is perhaps worth repeating, no one currently on incapacity benefit is affected. We are talking about future claimants only. It would be wrong to take away benefit from existing claimants, where they satisfy the other entitlement conditions, but we do not believe it right that incapacity benefit should become a means of alleviating the effects of long-term unemployment. The right way to tackle unemployment is through our welfare-to-work programme, not through incapacity benefit.

As my noble friend Lord Davies of Coity pointed out, the previous government were content to let thousands of people, men in particular, drift from unemployment to incapacity benefit and stay there until they retired. Not surprisingly--and I do not blame those people at all--many older people turned to IB as a more generous benefit, and perhaps somehow as a more “respectable" benefit than unemployment benefit. The then government colluded in order to massage their unemployment figures by switching people onto “the sick". We all know it. Never again. In many parts of the country a whole generation was written off by the previous government.

The Chancellor has made a statement to which I believe Beveridge would certainly have responded. He said that he is expecting and hoping for the prospect of

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a return to full employment and that that it is within our grasp. But if we are going to help people realise their full potential, as well as giving them support through the New Deal and the ONE service, it is essential that we are clear about the role of benefits such as incapacity benefit.

My noble friend Lord Morris raised the point about fraud. I say that this is not about fraud at all. I entirely accept his statements. I have never said that this provision was about fraud and I have never said that BIP was about fraud. He has been generous on many occasions to acknowledge that. The exercise of BIP (the benefit integrity project) showed that there was no confirmed evidence of fraud. I was delighted to be able to tell the House so on several occasions. However, it showed that quite a significant percentage of people--between 15 and 20 per cent or thereabouts--were actually on the wrong level of benefit. That was usually, I am glad to say, because they had got better, but they continued to claim an incapacity benefit.

Those are precisely the people whom the Government seek to help; those on, say, incapacity benefit who have got better, or those on DLA who want to, are entitled to and able to work. We want to encourage those people into the labour market, not to ask them to hold onto a benefit when the need for that benefit and the basis for their entitlement to it has passed.

What is the function of incapacity benefit? Incapacity benefit is supposed to provide a measure of earnings replacement for people who have had to stop work because of sickness or disability. It replaces to a degree the wages lost from work. That was the original intention. I know that many noble Lords may not accept that point, but it is long standing. I defer on this to the experience of the noble Lord, Lord Campbell of Croy, and to that of my noble friend Lord Longford. But we have had this checked and it is clear when one looks at what Beveridge was doing, from the start of the National Insurance Fund in 1948, the conditions of entitlement to sickness benefit included a requirement that contributions had been paid or credited in the most recent year. That was Beveridge's stipulation in 1948.

But the purpose of the original sickness benefit, which in time became invalidity benefit, which in time became incapacity benefit, was to require that contributions had been paid or credited in the most recent year. In other words, it was a benefit for those in work who had lost their work through sickness and disability in that year or the year before and, as a result, needed a benefit of support to replace their earnings. That was introduced by Beveridge. That requirement evolved over the years until in 1988 the previous Conservative government introduced the current second contribution condition for both sickness and unemployment benefit, which requires contributions or credits in both the last two years. That condition was carried forward unchanged by the previous government when sickness benefit was replaced by incapacity benefit in 1995.

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I might add that when the second contribution condition was debated in 1987 the then junior Minister, Mr Portillo, said unequivocally about sickness and unemployment benefit:

    “Both benefits are designed for people who have been in work and they have been so designed since 1948".

Therefore, there has always been an understanding, an acceptance and an intention that IB was an earnings-replacement benefit for people recently in work who fell out of work through sickness or disability.

There is, therefore, a continuous history of a link between entitlement to incapacity benefit--or its predecessor, sickness benefit--and recent work. It has never been enough, as some noble Lords might suggest, for someone to have paid a minimal amount of contribution in just one year--a sort of “on account"--in order to receive incapacity benefit at any point thereafter; that is, 20 or 30 years after and so on. Equally, it has always been possible for people to have paid contributions over a number of years and fail to qualify. The entitlement conditions have always involved looking at what the person has been doing recently. In practice, people whose circumstances do not attract credits will currently need to have been working and paying contributions in both the last two years in order to qualify. It is an insurance scheme. If one has not paid that insurance, there must be questions about one's entitlement.

At the same time, however, the second contribution condition can be satisfied by credits alone. The current rules mean that someone who has been unemployed and who has signed on for many years qualifies. The result is that half of the people receiving incapacity benefit today came not from work, because they had become sick or disabled, but from unemployment--often many years of unemployment. Incapacity benefit was never intended to be an alternative unemployment benefit or, indeed, a top-up to early retirement benefit. It was intended to replace the earnings of someone who became ill or disabled while in work and fell out of work.

Therefore, the current situation with regard to IB is not consistent with the role of the benefit as a replacement for wages. Indeed, it would not have been even conceived of in the late 1940s by Beveridge when the national insurance system was created.

The Government's proposals for reforming the contribution test are intended to remedy the situation and establish a firm link between benefit entitlement and recent work. That link would not be achieved through the suggestion of my noble friend Lord Ashley of a test of contributions in one of the last seven tax years or 10 years in total. That is what he calls his compromise amendment. The one-in-seven test would allow people to qualify for as long as 8½ years after they last worked and paid contributions. The 10-year alternative would extend that period even further. In practice, there would be so little difference from the current situation under the so-called “compromise benefits" as would make virtually no difference. At the moment approximately 300,000 people claim incapacity benefit after the six-month period. Under

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my noble friend's amendment, only 5,000 people would find themselves in a different situation from the one in which they are now. It is not a compromise. Effectively it continues the status quo.

However, the Government's proposals do recognise the need for some exceptions to the requirement to pay recent contributions. We are providing exceptions and exemptions for a number of vulnerable groups. Who are those vulnerable groups? In my view, the most vulnerable group is those young people who are long-term sick and who have become long-term disabled before they have the opportunity to work and contribute. They may have been born with cerebral palsy. They may have severe learning difficulties. However, they will never have been able to enter the labour market nor to build contributions. They are among the poorest and most severely disabled in our society. As a result of the measures which we propose in Clause 60, those people will be in a far better position than ever before. Those measures will enable them to claim incapacity benefit, rather than the much lower severe disablement allowance, without having to satisfy the contribution conditions. Therefore, the poorest and most disabled, those born with a disability virtually from birth or acquired in their youth, will be protected. They will receive IB without contribution conditions.

Another vulnerable group is carers. We have made it clear all along that there will be regulations to maintain the status quo for former recipients of ICA--invalid care allowance. They will continue to be able to qualify in the same way as now on the basis of contributions paid in any tax year and credits in the last two.

We have also said all along that there will be safeguards for people who leave IB and have to return to it before they have had sufficient time to rebuild their contribution record. Those are people on IB who have taken the risk of entering the labour market. We seek to lay that risk not on them but on the Government so that such people can return to IB if their health or their job, so to speak, collapses. We have achieved that through the protection of the one-year linking rule, which we introduced last year. We want to be able to provide a complete assurance that people will not lose out under the new contributions test if they try to return to work in that situation.

I am pleased to announce today a further initiative. We are providing protection for another particularly vulnerable group who might otherwise lose out through trying to work; that is, people receiving disabled person's tax credit and earning below the lower earnings limit. I believe that may refer to a point made by the noble Lord, Lord Campbell of Croy. I believe it was a legitimate concern and we are addressing it.

People on DPTC already benefit from a special two-year linking rule in IB. However, after careful consideration of the representations made by disability organisations, we agree that further safeguards are needed for low-paid workers who remain on DPTC for more than two years. Therefore, I

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am pleased to announce that we intend to provide that people who no longer receive DPTC--perhaps because a deteriorating condition such as multiple sclerosis, which has been mentioned this evening, means that they can no longer work--will be able to qualify for IB as they do now on the basis of contributions paid in any tax year rather than one of the last two. An amendment will be needed to ensure that our regulation-making powers are wide enough to do that. I hope to bring forward such an amendment at Third Reading.

I believe that those safeguards, and in particular the further protection that I have announced today, show very clearly that the Government are not inflexible. We recognise that there are particular circumstances in which it would be wrong to require contributions to have been paid in one of the last two tax years, and we are dealing with those. By using regulation-making powers, it also means that we have the scope to modify the protection for the groups which we have identified, should that be found to be necessary, and to provide for other people in comparable situations that may arise in the future. Flexibility is built into our approach.

For those who do not qualify for IB in future, income support will be available. Income support already goes to many people who satisfy the medical conditions for IB but not the contribution conditions. As your Lordships will know--

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