HC Deb 14 July 1972 vol 840 cc2166-74

6.2 p.m.

Mr. Michael Barnes (Brentford and Chiswick)

I am grateful for the opportunity to raise the subject of the wage stop. The wage stop is the provision which says that a person's income when he is unemployed or temporarily sick must be no greater than his income when he is in full-time work. This means that if someone's income in work is less than what the State would pay a family of his size in benefits then, when that person is unemployed or temporarily sick, the amount he can receive in benefit is limited to the amount of his income when he is in full-time work.

This means that it is possible for two identical families with identical needs to get different amounts of aid from the State, the greater benefit going to that family which in better days was better off. It may surprise many people to realise that there are large numbers of people in full-time work whose income is less than that which they would receive if they were on benefit. This sadly is true. There are tens of thousands of such families. I am not sure of the latest figures of those families in full-time work with an income below the official poverty line and I would be interested to hear of any figures which the Minister has.

The effect of the wage stop is made worse at present by the high level of unemployment, especially the long-term unemployment that is creeping in in some cases, and also by the growing unemployment among registered disabled persons. A total of 45,000 such people were unemployed in 1966 compared with 80,000 in 1971. This means that people becoming unemployed in these low incomes groups can be condemned by the wage stop to remain in the direst poverty in some cases for many months, because of the current unemployment situation.

The last major examination of the wage stop was in 1967, when the Supplementary Benefits Commission published a report, "The Administration of the Wage Stop" which followed concern that had been expressed at the extent of poverty revealed in the survey which the Ministry had carried out the previous year called "Circumstances of Families." The Commission recommended in that report modifications to the wage stop which went some way to making the wage stop less harsh. But I intend to argue that the time is due for a further review of the wage stop; indeed, I go further and say that the time has come for the wage stop to be abolished.

We must be clear about what the wage stop means to the families to whom it is applied. A very interesting study by the Child Poverty Action Group was published a few months ago. It was a study of 18 wage-stopped families. A sample as small as that is not statistically valid, but it was a very important study because of the way in which it highlighted the human situations behind the wage stop. I should like to quote from the report which the Child Poverty Action Group produced. At the bottom of page 4 and the top of page 5 it said of people on the wage stop: For all of them life was a constant struggle in which every piece of expenditure had to be weighed up against another: a loaf of bread against the bus fare to school; warm clothes for the children against the rent; the rent against the bills piling up. They were caught up in a hopeless cycle, living from one payment day to the next, the money always running out too soon so that by the end of each week's cycle they were living on bread and marge, and were borrowing from the neighbours". Later the report says: The children, too, were often forced to live home-centred lives because of the lack of money. It was difficult to go around with the other children in the area when they had no pocket money to spend. The parents felt this very keenly". The study also drew attention to some of the unfairnesses which arise through the implementation of the wage stop. The most serious is the failure in some cases to allow for any overtime which might have been worked in calculating how much benefit people should get. If there is precise evidence of overtime earnings, the Supplementary Benefits Commission takes that into account in calculating the benefit which families which are wage-stopped receive. But two-thirds of wage-stopped families are not, it seems, able to offer any evidence of earnings, and therefore their benefit is calculated on the basis of notional earnings; and "notional earnings" means the national joint council rate for local authority manual workers in the labourer or light labourer grades. For notional earnings, however, there is a specific instruction in the A code, which is the confidential instruction issued by the Department to Supplementary Benefits Commission officers, not to make an addition to the benefit to allow for overtime.

The national joint council rate I have just mentioned is £19.90 for labourers in the London area and £19.45 for light labourers. Outside London it is £17.90 for labourers and £17.45 for light labourers. But in November, 1971, the National Union of Public Employees and the local authorities agreed between them a guaranteed minimum income of £21 a week in London and £19 a week outside London. It is very unfair that the commission should apply notional earnings when calculating the rate of benefit below the guaranteed levels negotiated between the NUPE and the local authorities.

This matter has been the subject of a rather unsatisfactory correspondence between my hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey), the Chairman of the Supplementary Benefits Commission, who is Lord Collison, and Mr. Frank Field, Director of the Child Poverty Action Group. Lord Collison apparently insists that the basic national joint council rate is a more reasonable yardstick than the guaranteed minimum agreed between the National Union of Public Employees and the local authorities. I must say that I find this view of Lord Collison totally illogical and I wonder whether the Minister is able today to offer fuller justification for it than perhaps is contained in the correspondence to which I have referred.

There are one or two other worrying things in the report and survey by the Child Poverty Action Group. There is the fact, for example, in page 16 that most of the families in the sample did not know that they were being wage-stopped, and that in many of the cases the wage stop was being incorrectly applied. This must raise doubts in our minds whether all those other families at present wage-stopped are receiving their rightful allowances.

Another point about the implementation of the wage stop is that the system relies so much on the judgment and discretion of individual officers, which in turn must depend on how many or how few wage-stopped claimants they have on their books. This obviously can lead to fairly wide disparities in the amount of care which they are able to devote to assessing different cases.

In view of all this, it is right for us to question at the present time whether the wage stop is worth all this trouble, whether it is worth the trouble and difficulty of implementation, whether it is worth all the suffering which it causes and especially whether it is worth all this in view of the very small number of families which are now subject to this wage-stop provision, which, I think I am right in saying, is of the order of 10,000 families.

It is not as though the wage stop were an incentive to get people back to work. The Report of the Supplementary Benefits Commission on the "Administration of the Wage Stop" makes this quite clear when it says: The purpose of the wage stop is not to provide an incentive to a man to get work. The wage stop does not require a man to get less when receiving Supplementary Benefit than he would get when working. What it does is to ensure that an unemployed man's income is no greater than it would be if he were in full-time employment. In that case, surely, what a man's earnings would be if he were in full-time employment must be based on a more realistic assessment, particularly an assessment which includes possible overtime, than appears to be being applied in many cases at the moment.

In practice I believe that the wage stop tends to be used by some officials as an incentive to get people back to work. I think the hostility which the Child Poverty Action Group survey found on the part of claimants at the attitude sometimes found in the supplementary benefit offices tends to bear this out. In page 16 of the report, one of the families in the sample is quoted as saying: The Social Security make you feel they are doing you a favour, that you should be grateful for everything you get. A frightfully demoralising experience the whole thing. In the case of registered disabled people, there is a provision to remove the wage stop in those cases where their prospects of getting any work seem very remote. Surely the logic of that must be that the wage stop is in a sense an incentive to get people back to work, and that is why it is removed from those people who have no prospects of getting any work.

With unemployment running at its present level, any kind of incentive to get back to work for wage stop families is very hard indeed for them to comply with.

Because of the slight confusion which I think many people detect in official thinking about the wage stop, whether it is meant to be an incentive or whether it is not—although I know it is officially denied, I think there is this slight confusion in the thinking there—because of the unfairnesses which arise from its implementation, because of the suffering which flows from it, because of the difficulties in implementing it, and, above all, because of the small number of families involved, I appeal to the Minister to carry out a further review of the wage stop at the present time, in the hope that he may feel there are grounds for finally abolishing it.

6.20 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Paul Dean)

I am grateful to the hon. Member for Brentford and Chiswick (Mr. Barnes) for raising this subject, albeit at a rather unusual hour for a Friday.

The basic problem, as I think the hon. Member will agree, is that of low wages and high family commitments, or, as in most cases, both. The wage stop is a reflection of this, and successive Governments over many years have accepted the need for a wage stop provision of one form or another. I reaffirm the Government's concern about family poverty. We have already taken practical steps to relieve it, and these will continue.

As the hon. Gentleman said, the purpose of the wage-stop is not to provide a man with an incentive to return to work. It is simply to ensure that an unemployed man's income is no greater than it would be if he were in full-time work. Because it is not possible to pay supplementary benefit to people in full-time work whose supplementary benefit requirements exceed their take-home pay, it has always been considered inequitable to treat people temporarily out of work more favourably than those who happen to have relatively low-paid jobs.

The standard of living of wage-stopped families is no different from that of families of low-paid workers with the same income. The solution to the problem is to be found not within the supplementary benefit scheme but in the field of family support. This is because wages are necessarily "blind" to family size, which is the chief cause of the wage-stop.

In recent years two factors have particularly affected administration of the wage-stop and the numbers involved. The first is the introduction of the FIS scheme in August, 1971. The second is the decision referred to by the hon. Gentleman which was taken by the Supplementary Benefits Commission in November, 1967, to link the earnings for wage-stop purposes of labourers and light labourers to the wage rates negotiated by the National Joint Council for Local Authorities (Manual Workers)—the NJC rates.

FIS is, therefore, an important factor in reducing the numbers wage-stopped and has made a greater practical impact in this particular area of family poverty than any measure introduced by the previous Government. This is evidenced by the fact that wage-stopped claimants are now 11,000 or 3 per cent. of unemployed supplementary benefit recipients compared with 24,000, or 10 per cent. in May, 1970.

Adoption by the Commission of NJC rates for wage-stopping labourers and light labourers is also important because it has the effect of applying a notional and freely negotiated wage rate to these claimants for whom it might otherwise be extremely difficult to arrive at a reasonable figure, given the great variety of labouring jobs which in practice they might obtain. Practical experience has also shown that this notional wage rate is often higher than the claimant's previous actual earnings or his potential earnings in any employment which he could reasonably be expected to obtain.

It is important that the wage stop should be administered with the greatest possible sympathy. The hon. Gentleman referred to the CPAG report. He said that it was a very limited report, as the CPAG admitted. The Chairman of the Commission has been in touch with the CPAG about this. We are anxious to investigate these cases, and, if we can get permission to do so, we shall carry out inquiries in all cases to see what we can learn from them. The Commission carried out an elaborate review of its functions in relation to the wage stop and reported to the then Minister in November, 1967. The Commission made a number of important proposals for modifying the operation of the wage-stop, and these have been progressively brought into effect.

I have already mentioned the beneficial effect of the NJC rates. An equally important aspect which the hon. Gentleman just touched on is of disabled people whose disablement is such as no longer to justify the application of the wage stop to them. The Commission decided that people with a combination of age, disability and length of unemployment who were virtually unemployable should no longer be wage-stopped. As a result of a special review almost 500 of the 8,000 claimants had the wage stop removed in January, 1970. Removal of the wage stop from virtually unemployable claimants now proceeds as a continuing exercise.

My hon. Friend asked whether people affected by wage stop were informed. There is a specific instruction that they should be so informed. Equally, there are regularly reviews through home visits at intervals usually of 13 weeks, but more frequently if necessary. In other words, the Commission is in close touch with their needs and does all it can to assist them.

Perhaps I may remind the hon. Gentleman of one or two other points which I think will assist in relieving the problems and difficulties which arise. I have already referred to the FIS scheme, and this will continue to have an impact on the number of wage-stopped and to reduce them markedly by comparison with pre-FIS experience. Furthermore, the Housing Finance Bill will help. The national rent rebate and allowance scheme will give some help by providing that a wage-stopped claimant will receive the same rent rebate or allowance as when he was in work, thus reducing the amount of rent for supplementary benefit purposes.

In the longer term the scheme of tax credits will also help by providing additional income related in part to family size. Research is taking place into these problems, and the following studies are relevant. There is a social survey of two-parent families receiving FIS, and this, among other things, will show how their income when employed compares with benefits they would receive if unemployed or sick. There is continuing work being done in my Department on the family expenditure survey with regard to low income families. Furthermore, the Department of Employment and my own Department are jointly sponsoring research into long-term unemployment by the Department of Social and Administrative Studies at Oxford University.

I hope I have been able to show the hon. Gentleman that a great deal is being done to ensure that this scheme is being administered in the most sympathetic way possible and also to see that other measures are brought forward, as has happened in recent times to deal with the problems of family poverty.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past Six o'clock.