HL Deb 30 November 1994 vol 559 cc643-59

5.55 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

My Lords, with the leave of the House I should like to repeat a Statement made earlier today in another place by my right honourable friend the Secretary of State for Social Security. The Statement is as follows:

"With permission, Madam Speaker, I should like to make a Statement on social security following from my right honourable friend's Budget Statement. Last year at this time I announced that social security spending would reach £88 billion next year and £92 billion the year after. Now I can announce that spending plans for those years have been reduced to £86½ billion next year and £90 billion the year after. This is the first time since records have been kept that social security spending plans have been scaled down. This reflects the impact, not just of lower unemployment and lower inflation, but also of my social security reforms. Nonetheless, social security on average now costs every working person £15 every working day. I am therefore announcing today further measures to curb the growth of expenditure and to help people off benefit.

"As my right honourable friend the Chancellor announced yesterday, we will implement in full the second stage of help with VAT as we promised last year. From April 1995, pensions will incorporate up to £52 for single pensioners and £73 for pensioner couples specifically to help with VAT on fuel. We will be letting people know about the extra help with VAT on fuel by means of a special notice in order books. We will increase help with cold weather payments and insulation grants beyond that previously planned. From this month payments for cold weather rise from £6 to £7 a week. They were to go up to £7.50 next November. But I shall in fact raise them to £8.50. We are also spending a further £45 million—£10 million more than I announced last year —to help insulate homes and improve fuel efficiency. It will provide grants for more than 60,000 extra households next year.

"A key aim of my fundamental review of social security is to improve work incentives. To help people out of dependency it is vital to do four things: to make work more rewarding than benefit; to help people with the transition from benefit to work; to persuade employers to hire the long-term unemployed; and to help create more jobs for the less skilled. I can announce a £600 million package, which addresses all four tasks.

"Family credit helps nearly 600,000 families in work. In October, I introduced a child care allowance which over time should help 150,000 parents with their child care costs. But the more people earn the less family credit they receive. Consequently, the incentive to move from part-time to full-time work is limited. So I am introducing a £10 a week supplement to family credit for those working 30 hours or more a week. And the least well off receiving housing benefit and council tax benefit will get the full value of the increase. This will cost £200 million and should help about 345,000 families. Family credit has proved its worth in helping families into work. But most unemployed people do not have children, so they are not entitled to family credit. But an in-work benefit might help them into jobs, too. I therefore propose to test run such a benefit through pilot schemes covering 20,000 claimants. If the pilots are successful we will consider introducing a national scheme.

"Many people who want to work are hesitant about accepting a job because of uncertainties about the size and timing of family credit payments, so I intend to speed up payments of family credit so that all new claims are dealt with in five days. Other people fear loss of help with their rent or council tax. So I shall let people who take a job after six months out of work keep housing benefit at their existing rate for four weeks, regardless of their earnings. And we will consult the local authority associations to ensure that entitlements to housing benefit and council tax benefit are revised speedily so that payments follow on seamlessly after the fourth week. The new back to work bonus, which I announced in October, will be of particular help for people who want full-time work. It will enable people working part-time on Jobseeker's Allowance or income support to accumulate a bonus of up to £1,000 payable on return to full-time work. This bonus will be tax-free.

"I am also giving employers an incentive to take on unemployed people. Any employer who takes on someone previously unemployed for two years will receive a one-year holiday from the employer's national insurance contribution. This change requires legislation so it will come in from April 1996. Assuming employers take on 120,000 people a year, they will benefit by £45 million.

"The greater the costs companies incur when they employ people, the less they can afford to pay or the fewer people they will take on. I particularly want to help less skilled people to get jobs. So I shall be reducing employers' national insurance contributions a further 0.6 per cent. for lower paid employees from next April; and I will raise all the earnings bands used to calculate employers' national insurance contributions by £5. To help companies concerned about high levels of sickness I can also announce that we will reimburse statutory sick pay in full where costs exceed 13 per cent. of a company's monthly national insurance bill.

"Housing benefit and income support for mortgage interest combined now amount to £11 billion. They have doubled since they were introduced in 1988. The UK is almost alone in paying 100 per cent of rents through benefit. As a result, tenants have no incentive to choose the less expensive of two dwellings nor to negotiate over the rent level. And landlords may be tempted to push up rents for those on benefit. Rent officers determine whether rents are within reasonable market levels and help is not normally available above that. But in many areas the market level is largely determined by those on housing benefit. The average private rent in the deregulated sector is around £75 per week. But housing benefit meets rents of over £350 per week. Taxpayers on modest incomes, meeting their own housing costs, resent subsidising rents higher than they can afford for themselves. And people on housing benefit should have similar incentives to those paying their own rents when deciding what they can afford.

"I shall introduce a new scheme next October. New claimants and those moving home will be entitled to housing benefit for the full rent up to the average rent for similar properties in the area. Housing benefit will only cover 50 per cent. of the portion of rent above that. Existing claimants in their current tenancy will continue to receive full housing benefit as at present. Local authorities will be given funds to be able to reimburse more than 50 per cent. of the rent above the average in cases where they think there is special need.

"Prospective tenants will want to know how much housing benefit is payable before they agree a tenancy. So we will consult the local authority associations and the Institute of Rent Officers about how to produce this information. At present people who are away can claim housing benefit for up to a year, even if their home is empty. In future, we will limit this period to 13 weeks except for people with exceptional reasons, such as those in hospital.

"Taxpayers pay the mortgage interest of people on income support. Since 1979, this expenditure has risen from £31 million to over £1 billion. And the scheme has major drawbacks. First, until I imposed a cap, it covered any size of mortgage, from cottages to castles. Next April I intend to reduce that cap to £100,000. Secondly, the generosity of the scheme for those out of work can create huge disincentives to move back into work. But to extend help with mortgages to people in work would be immensely costly. Thirdly, since income support cover is paid direct to lenders, the scheme is simply bailing them out from their bad lending practices. Lastly, the present system discourages individuals from taking out private insurance and stops lenders insuring all their loans. Nonetheless, private insurance has spread significantly. I believe that insurance of mortgages should become the norm. So for anyone taking out a loan after 1st October 1995 we will pay income support mortgage interest only after the first nine months. I believe that insurance for this nine month period will be readily available. Indeed, I expect that many lenders will incorporate it in their loans at very modest cost.

"Existing mortgage holders qualify at present for 50 per cent. of their interest payments for the first 16 weeks. But as this money is paid to borrowers, it is not always passed on. In practice, most people who lose their job and are unable to meet their mortgage payments return to work within a few months. And most private policies make no payments in respect of the first few weeks. As a result, lenders rarely repossess, even where the borrower is not covered by income support. I therefore propose that no payments will be made for existing mortgage holders, who start an income support claim, for the first two months. For the next four months, the payment of 50 per cent. of mortgage interest, currently made to the borrower, will be made direct to the lender. Thereafter, mortgage interest will be paid in full, as at present. We will consult the Social Security Advisory Committee, mortgage lenders and insurers about circumstances which cannot be covered by insurance. I am confident that the insurance market will respond, that lenders will behave responsibly, and that sound lending will ultimately contribute to a healthier market.

"The fight against benefit fraud remains a top priority. Last year our crackdown saved a record £654 million and caught a record 300,000 cheats. But prevention is better than detection. We want to stop fraud happening in the first place. That requires a secure system of payment. We are working with the Post Office to create an automated system of payment, probably involving a payment card, dramatically to reduce fraud involving pension books and girocheques. We are seeking private sector finance for this major initiative which will strengthen the whole Post Office network; although the system we choose must be easy and acceptable to use, especially for pensioners. Nine companies and consortia have put forward proposals to be prime contractors for a system which could be in use in 1996.

"However, most fraud involves people giving false information about their earnings and circumstances, so we will be making more checks on circumstances. We will be doing more home visits. And we are piloting a scheme in London so that local authorities can cross-check information about their housing benefit claimants. This will cost £100 million a year, but it should save over £2.5 billion over three years. I am also tightening some rules.

"I have already acted against avoidance of national insurance contributions by employers who pay earnings in various non-cash forms. It undermines the whole basis of the NI scheme. Such practices are devious. I have already put a stop to fine wine wage packets, precious stone salaries and a number of other ruses. I give due warning that I will take further action as and when required.

"Separately, I will be limiting the grant paid through the social fund for funeral payments. The level of payments for funerals through the social fund has grown by 6 per cent. a year above inflation. Costs have risen from £18 million in 1988–89 to £61 million this year—a more than three-fold increase. Funeral payments cover the whole cost, so funeral directors can force up cost to customers on social fund knowing they are unlikely to obtain better quotes. I have taken action to stop families claiming via remote relatives on income support. I propose next April to limit the maximum payment to £875, which is the average payment last year.

"Madam Speaker, the measures I have announced today mark a further radical step in my reforms of social security. My aim is: to improve incentives, to focus help on those most in need, and to stop social security outstripping the nation's ability to pay. I have set out a £600 million programme to help people out of dependency and into work. I have fulfilled our promise to help pensioners and others cope with VAT on fuel, at a far more generous level than anything suggested by the Opposition. And I have put forward sensible plans to tackle the rapid growth in housing benefit. Any party which shrinks from these problems is unworthy of government. This Government have the courage to tackle them. I commend these measures to the House."

My Lords, that concludes the Statement.

6.10 p.m.

Baroness Hollis of Heigham

My Lords, I thank the Minister for that Statement. We agree with much in it. Clearly, fraud must be tackled and clearly we must use benefits to encourage people into work rather than bar them from it.

I should like to make a general point before coming to the three more important issues that were raised in the Minister's Statement. I think that we all agree—we must —that the problems are very difficult, but in my view they are made much worse because the policies of the Department of Social Security, the Department of Employment and the Treasury do not reinforce each other but undermine each other. I shall expand on that.

The Government are seeking to contain DSS expenditure essentially by taking people off contributory non-means-tested benefits—even though they have paid for them—and putting them on to means-tested benefits. The Government are moving people off invalidity benefit and, if they are not eligible for incapacity benefit—and 200,000 people will not be—putting them on to income support.

The Government are also seeking to move people from unemployment benefit, which is a 12-month benefit, and on to the jobseeker's allowance which after six months will be means-tested. They call that "targeting", but it means that for every pound that the claimant might earn (or that his or her partner does earn), the couple loses a pound in benefit. I shall take the example of a couple where the husband is in work and the wife is working part-time. If the husband loses his job, his wife has to stop her part-time work, otherwise her husband will lose benefit. The result is that if one person loses a job, both do; if one person goes on benefit, both do. The family then goes from being work-rich to work-poor, doubling unemployment at a stroke. That is the direct result of means-testing and targeted policies.

Then, as we see in today's Statement, the Department of Employment and the Treasury come along with various fancy schemes, many of which are perfectly welcome in their own right, such as the rolled up bonuses or the 24-hour rules, to coax back into work the same people the DSS has just helped to exclude from work because of the means-tested benefit system that the Government have constructed. That is perverse and costly because once a couple is on benefit, they will need even more benefits to pay their 100 per cent. housing benefit bill, their council tax bill and the lot. That will end up costing more in total benefits than would have been the case if the couple had remained on contributory and non-means-tested benefits in the first place. We ask the Government to start thinking this through because at the moment their policy is not only stupid but undignified and very expensive.

I turn now to the specific proposals in the Statement. The first related to VAT on fuel. We firmly believe that VAT on fuel should not be increased to 17.5 per cent. especially, notwithstanding the Minister's words, as the compensation package is both inadequate and incomplete. The Minister said that he will implement in full the second stage of help with VAT, but that does not mean that that will cover the cost of imposing VAT on fuel.

I say that for three reasons. First, the people it is designed to help are precisely those with the greatest need of heating in their homes, such as the elderly. All the estimates show that the VAT rebate will meet only half the real cost of the imposition of VAT on fuel because those affected are heavy users of heating.

Secondly, those who do get compensation will not, as the Minister seemed to indicate, get a clear increase of 50p for a single pensioner and 70p for a couple; instead they will get what remains after the Rossi index has top-sliced their normal uprating—in other words, we estimate that the increase will be 25p for a single pensioner and 30p for a couple. I have to say that the Government's way of presenting the figures must be deliberately misleading pensioners.

Thirdly, those in equally dire financial need, such as the very low paid and, above all, those disabled people who have only the disability living allowance, will not get any compensation at all to cover the added cost of the imposition of VAT on fuel. Therefore, somebody with severe multiple sclerosis or severe rheumatoid arthritis who needs 24-hour heating will face increased heating bills of £2 or £3 a week with no compensation for the VAT. I ask the Minister to defend the Government's position and to say why disabled people receiving only disability living allowance will not have their VAT reimbursed, as will pensioners and other groups, while the chairman of British Gas is at the same time giving himself a pay rise of over £200,000 a year. That is deeply wrong and deeply offensive.

The second proposed change that was announced in the Statement relates to housing benefit. Again, we welcome aspects of it. We welcome the smooth-over of the four-week period. That is right. We welcome the fact that the Minister is proposing that tenants should know their housing benefits in advance. That is right. It is understandable that the Government want to cap housing benefit. But let us be in no doubt about it: like so many other problems, this is a problem of the Government's own making. The Government decontrolled private sector rents in 1988, deciding, as Sir George Young said, to let housing benefit take the strain. That has cost us as taxpayers an additional £7 billion in rent allowances since. However, the Government are now saying that housing benefit will not take the strain and that they will not allow it to finance reasonable market rents but only the average rent in the locality plus 50 per cent. of the difference. That is rent control through the back-door.

The Minister talks glossily about tenants' incentives to choose "cheaper property". What world is he living in? Tenants are in no position to choose; it is a landlord's market. I know that tenants are grateful simply to find somewhere clean, decent and safe. What will now happen? Does the Minister really assume that landlords will reduce their rents to the rent officer's judgment of the average rent in the locality? Already most landlords prefer not to let to tenants on housing benefit. If they have to cut their rent as well, they certainly will not let to such tenants.

What happens then? Tenants on housing benefit will either be unable to take the property and will become homeless; or they will seek to top up their rent out of income support, go into debt and then become homeless; or the local authorities will be expected to pay the 50 per cent. difference, especially if children are involved who might otherwise be taken into care. That will mean either a charge on council tax payers (local authorities may be capped) or on council tenants (who themselves will have to pay higher rents to gain the higher rent allowances and who will therefore need more housing benefit themselves).

Will the Minister please tell us how much the proposals will save and who or what he now expects to take the strain, if not housing benefit? Will it be the landlord, by cutting the rent? Unlikely. Will it be the tenants who will see their income support top-sliced? Unaffordable. Will it be the local authorities, which are capped? Impossible.

The Government are also introducing new proposals on mortgage insurance about which we are very worried because they are likely to increase homelessness. There are real difficulties here. The Council of Mortgage Lenders says that 57 per cent. of home owners receiving income support help with their mortgage are not in work. They are disabled, single parents or retired. They cannot get insurance. Those who most need insurance will, by definition, be those least able to get it and least able to afford it. Will the Minister please tell us who will take the strain? If private tenants are not going to be able to have access to housing for rent, if council houses are not being built by local authorities and if people are unable to afford to keep up their mortgages, who will meet, face and take the strain of the resulting problem of homelessness which the Government are surely creating?

Finally, the Government have a series of proposals in the Statement on employment and moves back into work. The Government are quite right. The social security system, as at present constructed, produces a double problem. There is the employment trap, that is, getting from benefit into work. And, once in work, there is the poverty trap; that is, of increasing your earnings, once in it.

Clearly, we welcome some of the detailed proposals—the national insurance holiday for the long-term unemployed, which was a Labour Party idea in the first place, the rolled-up bonus, and the work trial schemes. They are intelligent. We also welcome the pilot schemes of work-start. The trouble is that we have little confidence in the Government's ability to deliver. To take Restart, for example, out of 850,000 people who last year were interviewed and counselled only 1.5 per cent. went on to find jobs. Why? The problem is not lack of skills, although that does matter. It is certainly not motivation. It is the absolute lack of jobs in the economy for male manual workers needing full-time work. We have seen our manufacturing industry in dereliction; we have closed down our construction industry; we have capped local authorities, who can no longer provide the infrastructure and public service jobs which such men previously did. It is not surprising.

The Government propose increases in family credit premium for those in work, and that is welcome. They are also considering extending family credit to people without families; that is, single people and couples without children. Can I raise some worries on that? I believe the intentions of the Government are benevolent; I am sure they are. However, the prospects are worrying. What the Government are saying is not that employers should pay a minimum living wage but instead that the rest of us, as taxpayers, should top up a wage below the living wage to make it so. Such a scheme could cost £490 million a year. A similar scheme in the 1790s was called Speenhamland. It is quite perverse. On the one hand, the Government are placing burdens on employers such as statutory sick pay, maternity pay and possibly pay for industrial injuries, which should be a national insurance and government responsibility. On the other hand, what should be the responsibility of employers—adequate wage levels—has been taken over by the Government, who will top up wages from your taxes and mine. Far from employees, it will be employers who will be sponging off a dependency culture.

Family credit is sensible if attached to a minimum wage: then it tops up family costs. Instead it is going to be used to top up wages themselves. The implications for public expenditure and the blank cheque it implies for wage levels and for the Treasury are frankly mind boggling. Employers will be able to press wages down even below income support levels, knowing that family credit and tax payers—you and us—will take the strain. I am amazed the Treasury will wear it.

We do not under-estimate the difficulties the Minister faces, but I have to say that they are largely of the Government's own making. The Government decontrolled private rents, and there has been a crisis in housing benefit. The Government have increased means-testing and there is therefore a crisis in employment and poverty traps. The Government have scrapped wages councils and therefore a minimum wage, so we are going to have a crisis over family credit. As for VAT on fuel, I do not believe the Government will be forgiven. In too many fields in this Statement the Government's policies are perverse, uncivilised and costly; they simply will not do.

Earl Russell

My Lords, admirers of the late Sir Alan Herbert will realise that when I refer to the Bishop of Ipswich I am describing an entirely fictional character. I am tempted to greet this Statement with the favourite remark of that character, "Well, it could have been worse". I am pleased to welcome the back-to-work incentives. They embody what is rapidly becoming a three-party consensus. We might argue about which party had these ideas in the first place. I do not think we need bother. What matters is that somebody is thinking and taking action which, on the whole, goes in the right direction. That we cannot but welcome.

I welcome the concession on the employer's national insurance below £205. I welcome the incentive to take on the long-term unemployed although this will clearly need monitoring to make sure that employers do not dismiss people who are not long-term unemployed in order to take on those who are. I am glad to see the Minister nod. I look forward to his further explanation. I welcome the rebate for taking on two-year unemployed. But why is this to come in during 1996 when presumably the Government are hoping that unemployment will be a good deal lower than it is now? It reminds me a little of the schoolboy who was asked which was the more important, the sun or the moon. He said that clearly the moon was more important for the moon gives light when we need it at night and the sun gives light in the day when we do not need it.

I agree with the noble Baroness, Lady Hollis, that some measures the Government are taking may rob others of their effect. I was extremely interested to hear what she said. A fact sheet from the Rowntree Trust, which I suspect the noble Baroness also received, said that the most rapid increase in unemployment was among the spouses of the unemployed. The noble Baroness is the first to offer an explanation of that phenomenon, I believe that she has made an academic as well as a political contribution.

I welcome warmly the attempts to ensure more rapid assessment of housing benefit and family credit, the four-week tiding-over period and the attempt to ensure quicker assessment of family credit. However, these proposals will put burdens on staff in benefit offices. The biggest saving thrust of the Statement concerns staffing within the government machine. Last September we had worrying reports of staff shortages in benefit offices. There were reports last week of staff shortages in employment offices in London. I should like to be sure that staff in benefit offices, who are doing their best, are not going to be blamed for failing to do what they have not enough people to deliver. The situation will need watching.

The job finder's grant I welcome, as I did last year. It is an imaginative and practical idea. So far, I believe that there has been a pilot study only. I would be grateful for clarification. Is it now actually being made universally available or is it merely a rather bigger pilot scheme? I have not managed to understand what exactly the Statement is saying about that.

The back-to-work bonus I welcome, and also the fact that it is tax free. I wonder, however, if that is quite enough. It will inevitably be perceived, since this is money that people have earned while on income support, as the Government paying people their own money. The Government will, I think, be asked whether they intend to pay that money with interest or, if not, at the very least, in the phrase of the student loans Act, at a zero real rate of interest. That is a point about which the Government might think.

I welcome, subject to the same reservation as put by the noble Baroness, the in-work family credit for the childless, and the full-time supplement. I will not make my party conference speech about that now. But the point needs thinking about. My main reservation on this section of the Statement is that over and over again we read the word "pilot". In fact, it looks like an airfield after rather a bad raid; it is all pilots and no planes. I would like to think that some planes will be supplied in the fairly near future so that some of these pilots can take off.

It is just not incentives in the benefits system that we need if we are to get people back to work; we need training. I regret totally the cuts in the budgets of the TECs, which are likely to work against the thrust of the welcome concessions contained in the Statement. In that context, and in the hope of saving the cost of severe hardship payments, I should like to ask whether there has been any uprating in the youth training allowance and the youth training bridging allowance, because, if not, the Department of Employment is, as usual, passing its bills over to the DSS. That is a form of recycling which I hope the department will agree is deplorable.

There are a number of things that the Chancellor and the Secretary of State could have done in the way of making it easier to get back to work, which have not been done. There is no relaxing of the housing benefit tapers; there is no concession to the pressure for a disregard or taper on income support. This summer, at the Liberal summer school, our outside guest was Peter Morgan of the Institute of Directors. He argued at some length that the benefits system discourages enterprise. Your Lordships may imagine that I questioned him closely about what he meant. What he was concerned about was that the total lack of disregard discourages the unemployed from doing small, self-employed jobs such as, for example, window cleaning. I do not agree with his remedies, but he has pinpointed a very real problem. I hope that the Minister will think about it.

Nothing has been done about passported benefits which are one of the big disincentives to getting back to work. Nothing as been done about the costs of travel to work. That can easily be £6 and £7 a week. It forms a tidy hole at income support levels. There is no recognition of the numerous people who cannot go to work unless they have a car. I do not see how someone in that position who does not have a car can ever get back to work. I should like to think that some thought was being given to the problem.

If people are to get back to work, as well as changes in the benefit system they need housing. They need a supply of low-cost housing. Here again, one is tempted to think that the Government have literally got themselves into a situation where their left hand does not let their right hand know what it is doing—the left hand being the Chancellor and the right hand, of course, the Chief Secretary.

The cut in the grant to the Housing Corporation, and the cut in the local authority grant for managing and maintenance will not do anything to encourage low-cost housing. Nor, I think, will the changes in housing benefit. One of them, I welcome. It is one for which I have asked in the past, and therefore I must. That is the arrangement to allow the tenant to be notified of an eligible housing benefit before a tenancy is struck. I wrote to Sir George Young asking for that on 21st December last. I should like, rather belatedly, to give thanks that that has been noticed. On the other hand, I am not happy about the notion of subsidising the average rent only. Every cricketer among us knows that some scores are above average. Not every house on the market can have an average or below average rent. That is in the nature of an average. So some people always must be forced into paying rents above average, with the consequences the noble Baroness outlined.

I ask the Government for one technical concession which it might not be beyond their power to grant. It is that the word "average" should be interpreted as the average rent of houses which are fit for habitation because, as we know, there are a great many which are not. They pull down the average considerably. If we push people into living in those houses, it is the Department of Health which will pick up the bill, and that will not be good for the PSBR.

I am interested in the proviso about people not receiving housing benefit if they are away from home for more than 13 weeks. I well understand the thinking behind the proviso. The example given in the Statement is that of prisoners. Again, I see the thinking behind the Statement. But the biggest difficulty in the reintegration of ex-prisoners in society is obtaining employment, and not having a home to which to return generally is not a help to obtaining employment. So I wonder whether here the Government may be cutting off their nose to spite their face. Other exceptions which I hope will be considered include seamen and members of the Armed Forces. I hope that there will be consultation about the matter because there is a good deal of thinking to be done.

My greatest misgiving relates to what is being done about mortgage interest. The cap is being reduced to £100,000. I hope that we can be told that that figure will exempt London. If it does not, it will be of little use. We are also told that the first nine months will not be covered. A lot can happen in nine months, including the building up of a very high level of debt. Once again I express my regret that the Government do not keep any figures about the levels of debt among those on benefit. A great many proposals might come out differently if that information were available to them.

The Government suggest that people should use private insurance. I am all in favour of people doing that when they and the insurance market can afford it, but at the moment our insurance market is under some strain. I should not have thought that it was in the national interest to persuade insurers to take on a great many heavy extra risks. I have looked into such insurance myself at various times when the university budget was under some strain. I found that on an academic salary the cost appeared prohibitive. If it is prohibitive on an academic salary, it will be prohibitive to a great many of those with whom we are concerned. They have the choice then of putting a greater strain on housing benefit or of becoming homeless and not working. I do not believe that either of those results are quite what the Government want. We shall have more repossessions. That will depress the housing market. It will diminish the feel-good factor, and that perhaps as much as anything else will lose the Government votes. It will not worry me. It will not worry the noble Baroness. I wonder whether it even worries the Government.

I agree with everything the noble Baroness said about that. It creates yet another poverty trap, and in a future Statement we shall be hearing of measures to relieve that. It makes me say yet once again how serious it is that students have been excluded from the benefits system and therefore excluded from help they need desperately.

Finally, and appropriately, I come to funerals. First, I want to ask the Minister whether the capital limit on the cost of funerals will be uprated every year. If not, it may cause severe hardship within a few years. Secondly, I want to ask the Minister whether he really supposes that the newly bereaved, talking to a funeral director, are, in any classic sense, customers in a free market. Most of us at that moment in our lives just do not regard it as decent to haggle and bargain over the price we are paying. So, for that reason, that proposal is not decent. I hope that the Government will withdraw it.

Lord Mackay of Ardbrecknish

My Lords, in so far as some parts of the Statement were welcomed by the noble Baroness and the noble Earl I thank them. They asked me a barrage of questions and I shall do my best to answer them. It is all very well for the noble Baroness to say at the beginning of her remarks that the problems are difficult. Indeed, they are. If in addition to following her questions I had time to click away at my pocket calculator I expect that I should have found that, if one interprets her questions and criticisms as meaning that she would prefer to spend more money in some of these areas, I had clicked the £88 billion towards £90 billion or £100 billion—and all at the expense of the taxpayers. That problem faces any government when they discuss the benefits system.

The noble Baroness began by attacking means-tested benefits in general. I shall read her remarks with interest because the cost of moving to non-means-tested benefits would be considerable and I should probably have to buy a new battery for my calculator.

She rightly agreed with the noble Earl and me about the problem of unemployment and of finding ways of encouraging people back into work and off benefit. She painted a particular scenario about the husband losing his job and the wife giving up work too. In fact, an easement in the jobseeker's allowance will allow a partner to work up to 24 hours per week instead of the present 16 hours and to keep the benefit. We have taken that problem into account.

The noble Baroness and the noble Earl were not pleased with my announcement about the help that will be given to pensioners and others as regards VAT on fuel. Yet on 21st November 1993 her honourable friend Mr. Donald Dewar, who leads for her party in the other place, indicated that the Government must add something to the pension in order to take account of that increase and that they could do so by adding an extra 50p. We added an extra 50p and we are now adding another 50p. The noble Baroness may like to argue about how we arrived at the second 50p, but the simple fact is that there will be £1 more on the pension of a single person and £1.40 on that of a married couple. That would not be available were we not proceeding to help people to meet the extra cost of VAT on fuel. We shall be giving approximately £1.25 billion-worth of help as regards this problem.

The noble Baroness asked whether the receivers of AA and DLA will be compensated. They will, as they were last year, because 90 per cent. of them receive benefits which include compensation. The remainder are likely to be in work or to be better off.

The noble Baroness spoke of housing benefit, as did the noble Earl, and she painted a dismal picture of what she thought would happen. She suggested that the Government's housing policies were to blame because the deregulation in 1988 had caused the escalation. Of course rents have risen, and housing benefit has risen as a result, but we must try to temper that rise. When average levels are much closer to £75 per week, taxpayers should not be expected to subsidise those receiving housing benefits on rents such as £350 per week. I read in today's newspaper of such a person paying more than £700 per week. If people choose to live in better quality, more expensive housing they cannot expect the taxpayers, many of whom do not live in such high quality housing, to pick up the Bill.

Of course, to some extent deregulation has caused that problem. However, it has increased the amount of housing for rent by approximately 16 per cent. I believe that reintroducing rent controls would be a retrograde step. The actions that we are now taking will go a long way towards helping those who are living in expensive accommodation. It will not affect people who are living in accommodation that costs up to the average level. Above the average level we shall pay 50 per cent. of the difference. I indicated in the Statement that local authorities will be given money in order to deal with hard cases.

I turn now to our proposals on mortgages. There is a great deal of indication that already a thriving protection insurance market exists and will develop in order to meet the demand that we believe will be placed upon it by the taxpayer withdrawing from the first nine months. Mr. Mark Boleat, the Director General of the ABI, said today that insurance companies will meet the increased demand from new borrowers for this type of insurance, with companies already providing this cover expanding their capacity and possibly new companies entering the market. I understand that today the Abbey National Building Society reported that between 40 and 50 per cent. of new borrowers are taking out a similar type of insurance.

We shall proceed cautiously on that issue and shall consult widely on the package through the Social Security Advisory Committee and directly with the lenders and insurers. I can assure the House that pensioners will be protected. The position of other vulnerable groups will also be considered during the course of the consultation.

The noble Baroness turned to the issue of encouraging people back into work and, understandably, asked whether there was a danger with the NIC holiday that some employers will sack people at the end of the holiday and recruit new people who will also be eligible for the holiday. It will come as no surprise to your Lordships to know that one of the problems in the whole social security field is that when one tries to do good, as we believe we are doing here, a number of identifiable problems crop up. We fully accept that that could be a problem. The detailed monitoring arrangements have yet to be considered but we believe that reputable employers will not do that. If we are right about the need to give such people, most of whom are men, the opportunity to return to full-time work, we hope that, if after a year they prove to be excellent employees, only a foolish employer would go back to the beginning and recruit another employee in order to receive the holiday. Obviously that is a matter that we shall be watching.

The noble Earl asked a number of questions and I suspect that I have covered some of them already. He asked about the staffing of benefits offices. In order to speed up the payment of family credit, which we believe is important and is paid from the central unit at North Fylde, extra resources are being provided.

The noble Earl also asked why the holiday will not start until 1996. As I made clear in the Statement, the reason is that we require legislation. He asked whether the back-to-work bonus will incorporate interest accumulated during its accumulation. No, it will not attract interest during that period but it will be tax free when it is paid out, which is important.

The noble Earl made much of a surfeit of pilot schemes. Some of the schemes that I announced today are not pilots. The new premium of £10, the faster payment of family credit and the run-on in four weeks on housing and council tax benefit are not pilot schemes but are being introduced now. The last two schemes are a recognition of the problem that he raised; that is, the expense incurred when people move off benefit and into work. We are aware of that and we hope that those two measures will try to tackle the problem.

On income support hardship payments available to 16 and 17 year-olds and to those waiting for YT or who are unable to work or train, I can tell the noble Earl that they have been uprated in the Statement. I believe that the £815 million spent on YT in Great Britain in 1994–95 represents a considerable investment in our future.

I am pretty certain that I will not have managed to answer every question that I have been asked. However, I believe that what we have here is a package which faces responsibly the problem of looking after those people who need help from the taxpayer and, at the same time, ensures that the cost to the taxpayer does not run out of all proportion to the ability of the taxpayer and the economy to pay.

6.51 p.m.

Lord Boyd-Carpenter

My Lords, I should like, first, to thank my noble friend the Minister not only for reading the Statement but also for the extremely interesting answers that he gave to a very large number of highly complex questions. I know that my noble friend would not for a moment claim that he had dealt with all the points raised. Therefore, the first question that I should like to ask him is whether the Government are proposing to arrange for a full day's debate in your Lordships' House on the Statement and on the proposals therein contained? It is a matter which is of importance to the vast majority of our fellow citizens. It is also a matter upon which your Lordships' House boasts considerable expertise, with a good many people who have served in social security departments who may claim, perhaps, to know a little bit about the subject.

It is most important that we should have an early debate, and a full day's debate—I do not mean one of those short debates—on the matter. I know that my noble friend will not be able to answer me at this time, but I hope that he will convey to his noble friend the Leader of the House the fact that we feel it very necessary indeed that this House should bring its great knowledge and expertise to bear on a subject which, as I said, is of such great importance to so many of our fellow citizens.

In the meantime, I should like to ask my noble friend a further two questions. First, I turn to what is being done to counter the evil effects of the proposed substantial increase in VAT on domestic fuel. I must confess that I share the view that has been expressed from the Benches opposite; namely, that the whole proposal is a great mistake and that the Government would be much wiser not to proceed to increase VAT on domestic fuel. However, on the basis that the Government are going to do so regardless of the advice they receive, can my noble friend say—I could not quite follow the figures that he gave—whether the proposed compensation offered will in the average case (and obviously cases will vary) fully compensate an unemployed person for the increase in the cost of his fuel, especially if the weather turns out to be cold? It is important for us to gain some idea as to whether the compensation, which in principle is obviously rightly being offered, will really make a substantial difference and seriously reduce, if not eliminate, the hardship which otherwise will undoubtedly be caused by such a very severe increase in taxation on what is a domestic necessity.

Secondly, my noble friend made no reference to the item in the gracious Speech that the Government are proposing to introduce a measure to secure the equalisation of pension ages for the retirement pension. That was not included in the Statement. It will obviously require legislation, but I should like to know whether such legislation is imminent.

Lord Mackay of Ardbrecknish

My Lords, I thank my noble friend for his kind opening remarks. I believe that I am right in saying that he is, perhaps, the longest serving incumbent of the Department of Social Security—although it may not quite have been called that—of anyone around today. I accept that there is a fair amount of knowledge to hand, as there are a number of other people in your Lordships' House who have passed through the Department of Social Security at various times. On the question of a debate, I believe that I would get into deep trouble with the usual channels if I made any comment in that respect, other than to say that I shall, of course, pass on my noble friend's remarks.

As regards VAT and the compensation for cold weather, I must tell my noble friend that clearly it would be impossible to identify and compensate exactly for each individual fuel bill. Therefore, we have to do it the way that we have and take a fairly broad brush approach by putting those extra amounts of money onto certain groups; for example—and I am using the pensioner as the basic starting point—£1 per week for a single pensioner and £1.40 per week for a couple.

I turn now to the problem of cold weather. It is possible that my noble friend did not notice that I mentioned that the cold weather payments, which rose this month from £6 to £7 a week, will in fact rise to £8.50 in 1995. That is £1 more than was originally announced. Perhaps I may also point out that the extra £10 million that I announced for use in insulating houses is a very important way in which people can not only reduce their heating bills but also make their houses a great deal more comfortable to live in. I very much hope that people will take up the offer of the money which is available.

I can confirm that there was nothing in the Statement about the equalisation of pension ages. Perhaps if the matter comes to the House in about the year 2010 it may begin to appear in the uprating statements. However, I can tell my noble friend that a Bill will shortly appear on the subject. I have no doubt that we will spend many happy hours discussing it.

Lord Jenkin of Roding

My Lords, I have one very short question to ask. My noble friend referred to a change in statutory sick pay. Do I understand from what he said that the Government have accepted the alternative scheme that was written into the statutory sick pay legislation, which was to be subject to consultation and to a final decision?

Lord Mackay of Ardbrecknish

My Lords, I am happy to confirm to my noble friend Lord Jenkin of Roding that that is indeed the case. Employers will compare their statutory sick pay payments in a tax month with their national insurance contribution liability for the same month. Where the SSP paid exceeds 13 per cent. of their NIC liability, the SSP paid in excess of the percentage threshold will be eligible for reimbursement. I understand that that point was argued by my noble friend when the legislation went through the House. The department consulted widely and I am happy to say that the new scheme has been given a wide welcome by both business and the TUC.

Lord Dean of Harptree

My Lords, can my noble friend the Minister confirm, first, that the Statement fully honours the Government's commitment to restore the real value of pensions and benefit on an annual basis? Secondly, I do not believe that my noble friend mentioned war pensions. Can he confirm that there will be similar increases in war pensions at the same time?

Lord Mackay of Ardbrecknish

My Lords, I can confirm that the uprating part of today's Statement honours the Government's obligation. Uprating is based on the RPI in the month of September. We have fully honoured that commitment. War pensions will, in fact, join the other pensions to which my noble friend referred.